KUALA LUMPUR: Maybank Investment Bank Bhd (IB) is positive on the ringgit outlook for this year but remains cautious about the external risk associated with the local note.
Maybank FX research and strategy head Saktiandi Supaat said recent factors that have boosted the local note would likely continue to support it this year.
"In November, major drivers for the ringgit were the general election and political uncertainty, followed by (developments in) China and (movements of) US dollar.
"Ringgit continues to be supported lately because of US dollar softness followed by Renminbi strengthening as well as dissipation of political uncertainty," he said during Maybank IB 2023 market outlook.
The ringgit is expected to hover at the 4.40 level against the greenback in this year's first quarter (Q1) before trading at 4.25 and 4.15 levels in Q2 and Q3.
Saktiandi forecasted the local note to end the year at the 4.05 level.
He said falling commodity prices from 2022 peaks might weigh on the ringgit, but the impact should be moderated as the trade balance holds up on China reopening.
"Other external factors, such as diminishing US dollar strength, and falling US Treasury yields, should support the ringgit in 2023.
"The outlook for the ringgit should hence lean positive although we stay wary of risks such as a higher than the expected peak in Fed rates or a global economic recession," he said.
As for the US dollar, it is expected to slide 'more discernably' as the labour market weakens and the Fed pauses its rate hikes in the first half of the year (1H23)
He noted the second half (2H) of 2023 should see a confluence of factors weighing on the dollar, which includes Europe's recovery out of recession, China's full exit from the Covid pandemic, a peak in US rates and moderation of inflation, and further tightening by the Bank of Japan.
"Therefore, the US dollar is not expected to be as strong as in 2022.
"However, risks to our views remain, such as a sharp US recession weakening risk sentiment or easing in Russia-Ukraine tensions that can push the US dollar more sharply in either direction," he added.
Meanwhile, Maybank IB holds a 'fairly constructive' view of the local equity market.
The firm has set a year-end target of 1,660 for the FTSE Bursa Malaysia (FBM) KLCI, reflecting a 12 per cent upside, pegged to 14 times the forward price-to-earnings ratio (PER).
This was higher than the target for 2022, which was 1,500 pegged to 13 times PER.
"We are more confident now that the market can sustain a higher valuation because investors are cautiously optimistic about two key things.
"One is the fairly seamless move to a new coalition government led by Pakatan Harapan's (PH) Datuk Seri Anwar Ibrahim, and given that PH has a reformist sort of agenda, that makes the market quite excited going forward in terms of policy reforms and restructuring.
"The second thing is that GDP growth, although it will be slow, is still positive at four per cent this year compared to many parts of the world that are going into recession in 2023," said Maybank IB head of equity research Anand Pathmakanthan.
He added that corporate earnings are also poised to record double-digit growth, further supporting the index.
The firm's sector preferences are financials, tech, electronics manufacturing services, oil & gas and aviation.
It gave an 'underweight' call for the gloves sector.