Christopher Wood, a well-respected analyst from CLSA is now bullish on Malaysia’s ringgit, even as oil prices nose-dived last week.
Malaysia is a rare net oil exporter in Asia and has been impacted by the slump in oil and gas prices in the recent years.
The 1MDB scandal and the central bank’s decision to disallow foreigners to hedge in the currency futures market have caused great damage to Malaysia’s reputation.
But the ringgit is now “extraordinarily cheap,” says Wood.
It is now cheaper than even at the worst point of the Asian Financial Crisis, in terms of real effective exchange rate.
“So for dollar-based foreign investors, buying Malaysian stocks means not only capital gain from stocks, but also favorable movements in the ringgit.”
In terms of effective real exchange rate, Wood said, the Malaysian ringgit is extraordinarily cheap while the Indonesian rupiah has recovered.
“While Malaysian stocks, trading at 16.4 times forward earnings, are not as cheap as its currency – domestic institutions tend to support the market, keeping its valuation elevated – “by historical standards [Malaysia is at] a low premium to the region”, says Wood.
He also said The CLSA Malaysia universe is trading at a 30% premium to the Asia Pacific ex-Japan region on a forward PE basis, down from 61% in mid-2014.
“Certainly, from a more narrow stock market standpoint, the good news is that there is growing evidence that the earnings trend is turning up after three years of downgrades.
“9% of the 45 companies under CLSA coverage beat earnings expectations in 4Q16, compared with only 9% in 3Q16, while 34% saw earnings upgrades post results.
“CLSA now forecasts 8% earnings growth for 2017 with the recovery led by banks and plantations,” he said as reported by Barons.