THE treasury market is set for a busier year in 2004, driven by better

economic prospects and speculation over a possible change in the ringgit

peg to the US dollar.

“The growth potential for treasuries is tremendous this year,” said RHB

Bank Bhd executive vice-president Michael Lim.

RHB is one of the top three treasury players in the country.

More money is expected to flow into the country this year as investors

are betting on better corporate earnings as well as currency gains.

With Malaysia’s economy expected to accelerate at least one percentage

point faster than it did last year, all sectors are anticipated to reap

the bounty. Exporters, in particular, will ride on the recovering global

market, beefing up the trade surplus and the central bank reserves

further.

Improved business sentiment has in turn spurred a rally in the treasury

market, which Lim said is “pulling the foreign funds in”.

Treasury business makes up 20 to 25 per cent of RHB’s group income.

Lim said that capital from hedge funds and investment banks could also

have flowed into Malaysia in anticipation of the change in the ringgit

peg.

The ringgit, currently pegged at RM3.80 to US$1, has been under

increasing scrutiny lately as the US dollar hit fresh lows against the

euro, pulling the ringgit down with it.

Should the ringgit appreciate after a change in the peg, investors who

bought shares on the Kuala Lumpur Stock Exchange will reap a bonus in

favourable foreign exchange gains.

“They take the view that the ringgit should be stronger and this is

attracting a little bit of money in,” said Lim.

The Kuala Lumpur Stock Exchange Composite Index (KLCI) has leapt 5 per

cent in the last month, pushed up by investors’ bullishness. The KLCI

reached a 42-month high on Monday, but lost 1 per cent in the last two

days – alarmed by the fear of the spreading bird flu in several Asian

countries.

According to Bank Negara Malaysia’s monetary update that was released

yesterday, the ringgit recovered slightly against the euro by 0.9 per

cent while depreciating against the pound sterling by 1.8 per cent this

month. It weakened 0.7 per cent against the yen.

Similarly, the ringgit was mixed against the regional currencies. It

strengthened against the Philippine peso by 0.5 per cent while

depreciating against other regional currencies in the range of 0.2 per

cent to 1.5 per cent.

Lim, nevertheless, does not expect any change in the ringgit peg

despite the sliding dollar.

“The peg has brought us a lot of goodies. The US dollar is only one

part of the equation. We should be more concerned about our trading

partners’ currencies,” he said.

Bank Negara has indicated that Malaysia will only consider revaluing

its currency if it is more than 20 per cent undervalued compared to the

regional currencies. This has yet to happen.

“The ringgit ought to be at around RM3.67 per US dollar. If you look at

the RM3.80 we have now, it’s not much difference,” said Lim.