Friday 29 Mar 2024
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KUALA LUMPUR: The ringgit is set to depreciate against the US dollar by 15% to 20% in the next three years on the back of better economic sentiments in the United States, said UOB Asset Management (M) Bhd.

Its chief investment officer Francis Eng said oil prices are also expected to continue to weaken in the next three to six months, and may hit a low of US$40 (RM143) per barrel.

“The value of the ringgit is closely tied to oil prices. The ringgit will depreciate to 3.6 or 3.7 per US dollar should the oil prices continue to decline,” he told a media briefing on UOB’s 2015 market outlook here yesterday.

“Apart from the ringgit, other currencies such as the Singapore dollar and the euro will also be affected,” he added.

UOB Asset Management (Singapore) Ltd head of fixed income for Singapore and Asia, Chia Tse Chern, concurred, saying the improvements can be attributed to the US’ decreasing debt and trade deficit levels, and will result in the US dollar to continue appreciating in 2015.

He also opined that the US dollar is not expensive, but rather cheap now.

“If you trace the US dollar based on the real effective exchange rate, its price-earnings ratio just stood at 7%,” he said.

Meanwhile, Eng is maintaining his forecast on the FBM KLCI for 2015.

“Based on the 12-month target, if the Malaysian market moves back to its price-earnings ratio of 15.5 times, it would translate into 1,750 points for the benchmark index,” he said.

Eng sees the Malaysian equity market improving in the second half of this year as oil prices gradually recover.

“We continue to expect a bit of volatility in the local equity market until oil prices recover as anticipated, in the second half,” he said.

“In the meantime, the current situation presents investors with opportunities to pick up undervalued stocks with solid fundamentals. Companies in the transport industry which will benefit from lower oil prices, as well as exporters that benefit from a stronger US dollar, are also good picks,” Eng said.

Meanwhile, UOB doesn’t see the declining trend in oil prices abating anytime soon, projecting oil prices to rebound to US$70 to US$80 per barrel within the next five years.

But it is unlikely for oil prices to climb back to over US$100 per barrel unless Saudi Arabia, the world’s largest producer and exporter of oil, decides to cut down its oil productions, the firm added.

 

This article first appeared in The Edge Financial Daily, on January 14, 2015.

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