[SINGAPORE] Malaysia's ringgit has done a stunning about-face this year, with surging capital inflows turning it into Asia's best-performing currency from the region's worst in 2015.

Still, few expect the ringgit to regain all the ground lost last year, as inflows may have peaked as Malaysian risk assets are starting to look pricey to investors and analysts.

The ringgit strengthened 10 per cent against the US dollar in January-March, its largest quarterly gain since 1973, Thomson Reuters data shows.

In 2015, the ringgit had its worst year since 1997, shedding 18.5 per cent on the back on plunging oil prices, anticipated higher US interest rates and a financial scandal at state-owned 1Malaysia Development Berhad (1MDB).

Driving the currency's U-turn is the return of foreign investors, who have poured into Malaysian stocks and bonds on better crude oil prices, a surprisingly resilient economy and easier monetary policies from major central banks. "The market is saying that this recovery in oil prices will be pretty positive for the Malaysian economy," said Kelvin Tay, chief investment officer for southern Asia Pacific at UBS Wealth Management in Singapore.

In February, exports rose faster than expected. Sales of electrical and electronic products, the biggest item, increased 8.9 per cent from a year earlier.

Through the week ended April 1, foreign investors bought a net RM5.5 billion (S$1.89 billion) of Kuala Lumpur stocks this year, data from the research arm of Malaysian Industrial Development Finance showed. Last year had total outflows of RM19.5 billion, it said.

Offshore investors have raised their local bond holdings by 11.8 billion ringgit in January-March, central bank data shows, with increased interest in longer-tenor debt. For all of last year, foreigners slashed holdings by RM11.1 billion.

The cautious stance of Federal Reserve Chair Janet Yellen on US rate hikes has caused investors to seek higher yields in Asia, aiding flows into Malaysia.

"This combination of an attractive currency valuation and higher yields in a world of low or negative interest rates is drawing foreign investors back to the local Malaysian market,"said Eric Delomier, Asia fixed income investment specialist for Capital Group of the US.

Analysts and investors have concerns, including valuations of Malaysian assets and leadership of the central bank as its internationally-respected governor, Zeti Akhtar Aziz, retires at the end of April, and her successor has not been named.

Malaysian bonds seem "a bit rich," said Maybank Investment Bank's fixed income analyst Winson Phoon in Kuala Lumpur. Earlier this month, the 10-year yield fell to 3.77 per cent, the lowest since February 2015.

"I don't expect to see a repeat large inflows in months ahead, although the direction should remain slightly positive," Mr Phoon said.

On share valuations, "Malaysia is actually not particularly cheap or attractive, compared to other markets," Mr Tay of UBS said. "We don't think earnings growth has actually improved among Malaysian corporates." Local stocks were trading at about 17.3 times the past 12 months' earnings, according to Thomson Reuters data. That compared with 11.8 times for Indonesian stocks, according to exchange data.

Zeti has led Bank Negara Malaysia (BNM) since 2000, and investors are hoping for a successor with her credibility to help Malaysia's standing at a time of political crisis for Prime Minister Najib Razak, chairman of 1MDB's advisory board.

"Given the near-term challenges to a new BNM governor, oil prices and festering political risk from 1MDB, among other things, the ringgit's upside is limited," said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore.

His year-end target for the ringgit is 3.70 per dollar, 16 per cent appreciation from its 2015 closing. Late Friday, the ringgit was at 3.90.

REUTERS