Only about a quarter of the ringgit’s 12% surge over the past year – the biggest in Asia – is attributable to macro catalysts such as global risk sentiment and moves in the greenback, according to a Bloomberg analysis.
Strengthening economic fundamentals – such as rising investment flows and growth that’s exceeded expectations – are proving to be more durable tailwinds for the currency, which has climbed to its strongest level since 2018.
The outsized gains “in the ringgit are likely on account of foreign direct investment, especially into data centres, which has paid off nicely, the growth momentum and resumption of fiscal consolidation,” according to Wee Khoon Chong, director of APAC macro strategy at BNY.
“The ringgit can ‘absolutely’ sustain its outperformance in emerging Asia in the first half,” he said.
The analysis used a factor-attribution framework that regresses the ringgit against the Bloomberg Dollar Spot Index, two-year Treasury yields and the MSCI World Index of equities.
The latter two factors combined exerted far less influence on the Malaysian currency than on Thailand’s baht, the Singapore dollar and the Philippine peso, it shows.
Investor confidence in Malaysian assets has been rising as the trade-reliant local economy shows resilience in the face of 19% US tariffs that came into effect last year.
Gross domestic product grew 5.7% in the October-December period, helping full-year growth beat official estimates.
Malaysia also plays a key part in the artificial intelligence supply chain and its emergence as a hub for data centre build-outs in Asia promises to create new growth opportunities for the economy.
Foreign investments across the services, manufacturing and primary sectors jumped by more than 47% year-on-year in the first nine months of 2025, according to a November press release from the Malaysian Investment Development Authority.
BNY’s Wee said optimism over the Johor-Singapore Special Economic Zone (JS-SEZ) may be another factor aiding sentiment.
Malaysia this month unveiled a slew of tax incentives to lure investors to the JS-SEZ that seeks to add US$26 billion per year to the Malaysian economy by 2030.
It plans to release the blueprint for the zone in the first quarter.
There are risks though. Malaysia is staring at a relatively more challenging period, with economic expansion projected to slow to 4%-4.5% in 2026 from 4.9% last year.
Further, HSBC Holdings Plc has said that the nation’s bond market is among those most at risk should an increase in Japanese yields – beyond the one that rattled global markets last week – prompt Japanese investors to repatriate capital.
Strategists at Goldman Sachs Group Inc remain optimistic when it comes to the currency outlook.
“Tech exports, foreign direct investment and stable Bank Negara Malaysia should underpin ringgit strength in 2026,” a team including Danny Suwanapruti wrote in a note last week.
The US bank in a separate Jan 23 report forecast the ringgit to rise to RM3.85 per dollar over 12 months.
The currency has already climbed more than 3% in January and capped a sixth straight day of gains yesterday to finish at RM3.92 per dollar.
A return of global funds to Malaysian stocks also augurs well for the ringgit.
Overseas investors have poured nearly US$308 million into the market on a net basis so far in January.
That’s after an outflow of more than US$5 billion in 2025.