Ringgit was unpegged to dollar in July 2005. When the ringgit is pegged, it has no incentives for speculators to hold Malaysian assets particularly equities.
Since Ringgit was unpegged, Ringgit has appreciated 20% from 2006 to 2008 while KLCI has appreciated approx 80% for the same period at the peak.
When the US sub-prime crisis hit the tail spin, market started to collapse, Ringgit also started to weaken. KLCI given up all gains due to liquidity push within 9 months - back to Ringgit pegged level.
Now, Ringgit and KLCI is at the same level again as at early 2008. In fact KLCI has peaked in Mid 2011 and corrected. But bull has recharged and pushing KLCI back to the high again. Based on the analysis above, Ringgit need to appreciated more than 20% level to push KLCI higher breaking the double top formed in July 2011 and now.
Assuming GE13 is around the corner, foreign funds will be hesitate to pour more money into KLCI. Whilst, the Malaysian G will have to preserve the "feel good factor" for "investors". Hence the G will definitely deploy its money machine to push GLCs or umno-link stocks. Felda Global is supposed to help in pushing overall sentiment upwards, but due to strong resistance from ANAK, representing the small holders voiced vehemently against the IPO has somehow deflate sentiment. Keeping watching for new strategic to be deployed by Najib.
