CURRENCY

1.  I am not an expert in currency, neither are those "experts out there" (In Jan 2016, many was predicting 4.50 to 5.00).

2.  An expert would have warned us prior to the dropping of our currency from RM3.10 to RM4.55 (crashed 45%).  It is a cummulation of many factors, plus our MO1 issue.  8/9/16 @ RM4.05 (we are still down 31%)

3. Lets take a look on hindsight, what are the major indicators of concern (IO) and any major change since about 12-18 months back.

4. IO1 - Foreign exchange for last 12-18 months.  Jan 2015 = USD112b to Jul 2016 (USD97b), (lowest in Oct 2015 = USD94.7b)

5. IO2 - Balance of Trade = Average 5 months to Dec 2015 = RM10b per month vs Average 7 moths to Jul 2016 = RM6b per month

6. IO3 - FDI = 2014 = RM35b, 2015 = RM31b, 2016 (7mths to Jul) = RM35b,  80% of the FDI is hot money i.e. Portfolio flow in 2015

7. IO4 - Total External Debt = Jan 2015 = RM750b to Jul 2016 RM850b (gradual increase)

8. IO5 - Foreign ownership of Malaysia bond (highest in EM) = RM1.0 trillion (44% owned by foreigners) in Jul 2015.  Latest 2016 = RMx.xx trillion (later - anyone know it?)

9. IO6 - External Debt/Fx Reserve = Jul 2015 = 200%, Jul 2016 = 220%.

10. IO7 - Government (Scandals) and Central bank policies going forward.

ARE WE OUT OF THE WOOD?

1.  NEGATIVE on IO2 (export weakness), IO3 (higher than pass years, concern of hot money flow out), IO4 (increased), IO6

2.  Anymore political or major scandals?

3.  Central banks reducing OPR, negative for RM?

4.  Any smart move by MO1?

5.  We are not entirely out of the wood yet, looking at IO1-IO7.

6.  My fund manager joke that no BAD news is GOOD news.

WHAT ABOUT CRUDE OIL?

1. Another IOX (indicator number x) which is the crude oil prices.  

2. Nymex today is about USD45 per barrel.  (Brent USD50 per barrel).

3. Gary Shilling (has been proven right on USD), still believe nymex can go below USD20 per barrel.  Timeline - 1-2 years.

4. Risk on Malaysian currency weaken is still NOT OUT OF THE WOOD, due to HOT MONEY (PORTFOLIO FLOW),  HIGH TOTAL EXTERNAL DEBT OVER FX RESERVE (2.2X vs 2.0X in Jul 2015) and ST EXTERNAL DEBT OVER FX RESERVE 80% (in Jul 2015), among the highest in the EM, rank no 2 after Turkey (Turkey Lira drop 64% since 2013).

5.  Adding on IF the Nymex does drop to USD20 or less per barrel (even though for a short period of time, it will cause many to PANIC).

6.  PANIC = OPPORTUNITY

IMPLICATION TO EXPORT STOCKS?

1.  Most export stocks already gain from our currency depreciation from RM3.10 (2013) to RM4.05 (today, Sep 2016). Jan 16 (4.40) to April 23 (3.90).  April 16 to Sep 8 ranges around 3.98 to 4.11.

2.  Between 1-2 years, risk of RM weakening is there (based on the risks stated above).  But it may not be the 30% kind of thing.  Is more like 10-15%.

3.  So, export stocks still have a bit of upside, provided they have not overrun their fundamental.  Near term, you will not get another 30% like what happen since 2013.