Cover Story: Investing in a weak ringgit environment

The ringgit’s latest weakening has make clear the potential winners and losers of this growth. The overall rule is that exporters with low import content material will translate into greater revenues from companies and merchandise provided in US {dollars} as a weak native forex. In the meantime, gamers with excessive imported content material will really feel distressed, particularly when some gamers can’t totally cross on the extra prices to their clients.

The glove, furnishings and planting industries are seen as winners when the native forex depreciates. Is that this actually so? And have share costs strengthened when the ringgit has weakened previously?

Chosen furnishings inventory and glove shares every rose 26.9% and 9.5%, whereas FBM KLCI gained 2.3% over the interval, as Ringgit misplaced 10.7% to 4.4570 between August and September 2015.

Furnishings shares additionally posted an analogous acquire of 29.9% when the ringgit dropped 16.3% from April 2016 to January 2017 to the touch 4.4975.

Furnishings shares for April-November 2018 rose 7%, with the ringgit depreciating 8.6%.

By way of valuation, the typical 12-month trailing price-to-earnings ratio (PER) for furnishings shares was roughly 12x, in comparison with about 13x six months in the past.

Notably, Poh Huat Assets Holdings Bhd and Homeritz Corp Bhd posted sturdy positive factors of their final quarter outcomes. Poh Huat noticed its web revenue enhance 59.4% to RM 15.35 million for the quarter ended January 31, 2022, because of stronger revenue margins.

However, Homeritz recorded the very best web acquire ever with RM 10.34 million for the quarter December 2021 – February 2022. This allowed HLIB Analysis to extend its earnings estimates 8.9% and 9.1% for FY2022 and FY2023 to account for stronger gross sales quantity ensuing from the group’s improved manufacturing planning and effectivity.

“Outcomes have been pushed by higher-than-expected gross sales quantity in addition to a stronger US greenback. “We anticipate Homeritz’s sturdy orders outlook in addition to the present constructive US dollar-ringgit alternate charge to proceed to contribute positively to earnings within the coming quarters.”

Share costs of main glove gamers posted constructive returns of as much as 23.4% throughout a lot of the native forex weakening cycles between April and November 2018.

The connection between international alternate actions and the plantation sector has not been sturdy. In the previous few years, planting shares have usually not moved in keeping with the forex development. Even their 33.1% year-on-year positive factors have been pushed by the worldwide commodity rally.

The electronics and electrical (E&E), petrochemical and industrial sectors are additionally poised to profit from the weak ringgit, stated Danny Wong, CEO of Areca Capital Sdn Bhd.

“There have been instances when the E&E and glove sectors performed a brief sport when ringgit had an enormous shift,” he advised The Edge.

However Wong says the state of affairs is completely different at this level, as there are different elements affecting market sentiment, together with the quarantine of China, the Russia-Ukraine conflict and the US Federal Reserve’s charge hikes.

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