HSBC expects capital outflows to cap ringgit gains

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HSBC: outflows cap ringgit

Highlights

HSBC reported nearly U.S.$30 billion in direct investment outflows in 2026, reducing the net contribution of trade and investment to the ringgit.
The prospect of higher U.S. interest rates and the risk of a correction in U.S. technology stocks after the U.S. midterm elections could add pressure on Malaysia’s exports and investment.
HSBC expects the ringgit to trade between RM4.10 and RM4.20 against the U.S. dollar in 2027, with limited room for gains after its recent recovery.

This article was translated from the original. Read the original version by our correspondent here.

Trade and investment flows weigh on ringgit support

As reported by The Edge Malaysia, HSBC Malaysia sees the rising goods trade surplus, now at a multi-year high, being offset by income outflows as multinational companies transfer some of their earnings overseas.

Joey Chew, head of Asia FX research at HSBC Global Investment Research, said many of Malaysia’s technology exports are produced by foreign-owned companies, meaning not all foreign-currency earnings generated are converted into ringgit. He said a substantial portion of trade and foreign-exchange proceeds is also repatriated by multinational companies.

According to HSBC data, against approximately U.S.$45 billion in foreign direct investment, an estimated U.S.$30 billion in direct investment outflows was recorded in 2026 alone. This suggests that the net contribution of trade and investment flows to the ringgit is smaller than headline economic growth figures might indicate.

Chew said Malaysia-based companies also invest overseas as the regional electronics manufacturing ecosystem expands, since not all components can be produced in Malaysia. He added that foreign inflows into Malaysian bonds do not necessarily boost demand for the ringgit because some investors hedge their currency exposure.

AI risks and U.S. rates shape the 2027 outlook

At the same time, the prospect of higher U.S. interest rates could encourage Malaysians to seek better returns in overseas assets, contributing to additional capital outflows. Against this backdrop, Chew warned that a potential correction in U.S. technology stocks after the U.S. midterm elections could add risks to Malaysia’s export and investment outlook.

He said global investors have built up substantial exposure to U.S. technology companies amid strong interest in AI, leaving markets vulnerable to a valuation reassessment. If the correction were to lead to cuts in AI capital spending, the impact on Asian exports, including Malaysia’s, would be greater, while also affecting data center investment in Malaysia and the region.

Despite these risks, Chew expects the ringgit to remain relatively resilient against several Southeast Asian currencies, supported by Malaysia’s economic growth and export performance. However, he sees limited room for further gains after the ringgit recovered much of its undervaluation in recent years, with HSBC expecting it to trade between RM4.10 and RM4.20 against the U.S. dollar in 2027, compared with the RM4.05 to RM4.10 range seen in recent months.

In our earlier coverage of the approval of 27 data center projects under the data center task force through July 2026, we examined how this RM225.97 billion investment is concentrated in Johor, Selangor and Negeri Sembilan, as well as its implementation status. We also outlined projected high-skilled job creation, the minimum 30% local content requirement, and regular monitoring of project implementation shaping the country’s digital investment ecosystem.

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