Price Earnings Ratio & Currency

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).

PE vs Avg PE.png

Thus, is FBMKLCI overvalued? From a foreign investor‘s perspective, it may not be the case as the Malaysian Ringgit (MYR) has declined significantly.

USDMYR.png

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:

PE vs Adjusted PE.png

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.

AdjPE vs Avg AdjPE.png

Is there a relationship between currency exchange rate and PER?

Summary_Relationship.png

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:PE vs USDMYR.png

Forecast Value.png

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE 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, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES OR RELATED INSTRUMENTS MENTIONED ABOVE.

Author: Ken Utau

Markets Observer + 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