With recent declines in corporate earnings, Malaysia’s FBMKLCI is currently trading at P/E that is relatively higher than its average trailing P/E (since 2010).
Thus, is FBMKLCI overvalued? From a foreign investor‘s perspective, it may not be the case as the Malaysian Ringgit (MYR) has declined significantly.
If we adjust PER using the USDMYR exchange (2010 as base), the adjusted PER appears to be lower than the actual PER of FBMKLCI, as show nbelow:
If compared to the average adjusted PER (since 2010), the current adjusted PER does not indicate that FBMKLCI is overvalued, given the fact that MYR has since depreciated significantly against the USD.
Is there a relationship between currency exchange rate and PER?
The above table appear to suggest that there is a moderate positive relationship between P/E and USDMYR. In other words, if MYR depreciates, the PER is expected to increase for FBMKLCI.
Based on the forecast graph (shown below), the current trailing PER of FBMKLCI of 17.69x appears to be fair, as the forecast PER based on the USDMYR exchange rate of $4.1925 is approximately 18.06x. 95%-confidence range for forecast PER is between 16.34x – 19.78x:
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