This article first appeared in The Edge Financial Daily on February 19, 2019
KUALA LUMPUR: The ringgit, which has appreciated 1.15% year to date against the US dollar, is still undervalued by 5% to 10%, according to Nomura Asset Management Co Ltd senior managing director and chief investment officer of global equity Wataru Ogihara.
“The US dollar has been strong over the last few years — in 2017 and 2018. The difference in the economic growth rates between the US and the rest of the world was at [its] largest since 1990s,” he said at an investment forum here yesterday.
The Japanese national said this could be the key reason why the greenback seems expensive against most currencies “but the gap will narrow in the coming years”.
Ogihara told the media that he believes most emerging market currencies are generally undervalued, and that the ringgit has potential for upside in time to come.
“Compared with the 10-year average of its real effective exchange rate, the Malaysian ringgit looks undervalued by 5% to 10%.” This is given its strong fundamentals and against the backdrop of increasing confidence in the Malaysian economy and domestic politics, he said.
The ringgit, last traded at 4.0858 against the greenback at yesterday’s close, has recouped most of its losses in 2018. Last year, the ringgit depreciated by 1.8% against the US dollar, in line with more regional currencies.
Weak corporate earnings growth
Commenting on his outlook on global corporate earnings growth, Ogihara said a downward revision is underway given the economic slowdown and partly on the back of a high-base effect, and Malaysia is unlikely an exception.
“In 2019, I wouldn’t be surprised if it (growth rate) goes down to zero, before eventually returning to the double-digit track … One of the reasons why I think growth is coming off is because a 20% annual growth cannot be sustained.
“And strong earnings are connected to strong economic growth rates — seen in 2017 and 2018 — and with the [global] economy slowing down, a slowdown in corporate earnings is to be expected, [before] the economy hits bottom and bounces back in 2021, hopefully,” said the fund manager.
Meanwhile, Ogihara expects the recovery in crude oil price to be intact. His projection is that the Brent crude prices will be in the US$70-US$80 per barrel range by year end, which he believes will be “positive for the Malaysian market”.
“We used to be there six months ago; I don’t think it is going to be very difficult [returning to that level],” he said.
Brent has recovered since hitting a low of US$50.47 (RM206.42) per barrel on Dec 24, 2018 to trade at US$66.32 a barrel as at press time.