New Straits Times (25/10/2018) - KUALA LUMPUR: Oil price volatility, escalating Middle East geopolitical risk and trade war have fuelled the need for Malaysia to diversify its economy, economists said.

Inter-Pacific Research head of research Pong Teng Siew said Malaysia should diversify its exports market and find broader or less risk trade partners to mitigate economic downturn and depreciation of the ringgit.

“The ringgit has weakened than it shouldn’t be, dragged by the depreciation of the renminbi following the ongoing trade tension between China and the US,” he told NST Business yesterday.

Pong said Malaysia was one of the largest China’s trade partners in Asean, mainly exporting electronics components, palm oil and crude oil. This had led to the ringgit depreciation as Malaysia was largely dependent and exposed to China.

“The correlations with China will lessen overtime if Malaysia diversifies its exports market and finds broader trade partners. This will allow ringgit back to its track,” he added.

Pong said the ringgit would strengthen against the US dollar and renminbi by establishing trade partnership beyond the affected countries.

“We have to find bigger export base to other countries. Now, we are too dependent on China and India for exports as these countries’ currencies are weakening,” he said.

OANDA head of trading for Asia Pacific Stephen Innes suggested that the ringgit would continue to trade with a defensive posture.

“Uncertain global risks, slippery oil prices and pre-budget Malaysia have traders for the most part sidelined (from the local market).”

Innes said China-US trade negotiation hopes were fading, with both sides now looking set to dig in for the long haul.

“Asian investors anchor themselves to the nearest gold bar and hold on until these blustery market conditions abate,” he said.

However, he said the markets worldwide continued to find a silver lining given the confluence of negative global drivers as sell-on rally continued to permeate every pocket of global equity markets.

Pong said the ringgit was undervalued and traded below its fair value of 4.14 against the dollar, adding that the local currency was behaving like semi-pegged against renminbi.

AmBank group chief economist and head of research Dr Anthony Dass expects the ringgit to trade between its support level of 4.1571 and 4.1589, with resistance pinned at 4.1619 and 4.1638.

“The focus of the day will be on Malaysia’s September inflation. We project it to hover around 0.9 per cent largely due to implementation of the Sales and Services Tax,” he said.

As the rout in the global equity market continues, triggering a risk-off sentiment, he said the focus would be on the coming Malaysian 2019 Budget, which will be tabled on November 2.