Historically for a market like Malaysia who are net exporters of crude oil, the stock market has had a direct correlation with the price of Brent Crude Oil. As the prices rise, so does our currency and the stock market typically follows as well with majority of stocks mirroring the strength of oil prices.  

However, in the last 12 months, this hasn't been the case. While prices of crude oil has rise and stabilized, the ringgit has continued to be relative weak against the dollar. If the trend was followed, it should be trending near the RM3.90 to $1 dollar range. The last time this mis-match happened was close to the period before oil prices retraced from the highs of $120. It happened another time in 2010, where oil prices broke through from the $80 to the $120, working the other way around. 

Historically what happens after a scenario like this is that prices have trended in favour of the commodity/currency that has the underlying strength in the past 12-18 months. This is MARGINALLY in the favour of oil prices. And because unlike previous situations where there trend was clear, it does indicate for the next 12 months or so, there will be a progressive climb in the direction of higher oil prices and strengthening ringgit.

Longer-term strength is still in the favour of the USD, but at least for the next 12 months or so, we should see a progressive return of stock prices that have typically flourished when USD is weaker. 

So where is the opportunity?

Using the logic above, there are a couple stocks that have historically thrived in a weaker USD conditions that we will be covering in our upcoming newsletter. 

However, in light of the fact that the underlying longer term strength is with the dollar, it makes sense to also cover the best stocks that are a proxy to the dollar. This could be useful if in the next 12 months once the long term trend we have highlighted is clearer as any unforseen macro conditions might turn oil prices south again. And it pays to be prepared at both sides. 
 

We will be covering the full list in our free Laburlah newsletter coming out this week available at www.laburlah.com

Disclaimer : The information provided here is just the viewpoint of the author. It is not a solictation to buy or sell any specific equities.