Export Stocks: Jumping On The Bandwagon

The Ringgit is weakening. Buy export stocks. Hang on, do we just jump on the bandwagon and chase after the export stocks?

For year 2016, research reports as well as investment websites / news / magazines have been advocating the common theme “Ringgit is falling, buy export counters”. Seriously, is Ringgit or MYR going to collapse? What about the imminent global recession, wouldn’t that affect the demand for our exports (i.e cheap Ringgit doesn’t mean everything)? To some extent, a falling currency would help the export market but the equation is not as simple as it is. In this simple desktop analysis, we would like to examine 5 popular Malaysian export stocks, namely: Top Glove (gloves), Kossan Rubber (gloves), Karex (condom), Inari Amertron (technology) and Latitud Tree (furniture). We hope to shed some light on the following questions:

  1. In light of a depreciating Ringgit, how have these stocks performed thus far?
  2. What is the statistical relationship / formula that can be analysed between the share price of these stocks and Ringgit?
  3. What are market’s expectations about the Ringgit?
  4. Are these stocks over or undervalued if compared to their predicted value as per the derived statistical formula?

What has happened since Jan 2015?

Export stocks 1

Using a common base of 100.0 (since 1 Jan 2015), Top Glove has outperformed the other 4 export stocks. Latitud Tree came in for the second spot. In a nutshell, it does show that the depreciating MYR/USD had created positive momentum for these stocks. Beginning early 2016, these stocks are  ‘correcting’ due to strengthening of the Ringgit.

Statistical Analysis

Regression analysis is performed between the share price of these 5 export stocks and the MYR/USD (since 1 Jan 2015):

Export stocks 2

Export stocks 3

Each stock has its own derived statistical formula which may predict the target price of the stock based on MYR/USD.  The statistical results are summarised as follows:

  1. The gloves counters appear to have stronger relationship with the movement of MYR/USD as Top Glove’s r-squared is at 0.73 whilst Kossan Rubber is at 0.81
  2. The other three export counters have r-squared of more than 0.5, which is more than 50% of the movements can be predicted.
  3. Based on actual MYR/USD exchange rate of RM4.165, it appears that all selected export stocks (except for Kossan Rubber and Latitud Tree) are trading relatively higher than the predicted values as per their derived statistical formulas.
  4. Based on the statistical formula, we can back out the implied MYR/USD from the current trading price of the stocks.  The implied MYR/USD range is  between RM3.87 – RM4.415, with an average of RM4.176.

Key Implications

This is a simple analysis. A detailed fundamental analysis is required on each stock. The derived formula is not perfect, as further fine-tuning of the statistical relationship is required. More importantly, even if the Ringgit is depreciating, it does not mean that the export market will increase as global demand will be affected if global economy faces recession. Further, prevailing negative yields around the globe may lead to the strengthening of the Ringgit.

 

 

 

 

DISCLAIMER: THIS SITE IS FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS.

 

Author: Ken Utau

Data Scientist, Markets Analyst and Food Lover

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s