Ringgit is undervalued, says HSBC Global Asset Management

by **Cals** Sat 06 Feb 2016, 02:16

Ringgit is undervalued, says HSBC Global Asset Management

By Alex Chong / The Edge Financial Daily | February 5, 2016 : 9:27 AM MYT

This article first appeared in The Edge Financial Daily, on February 5, 2016.

KUALA LUMPUR: Malaysian and Indonesian bonds are worth a look due to their undervalued currencies and improving economic fundamentals, according to HSBC Global Asset Management.

“In terms of short-term market performances, both [the] ringgit and Indonesian rupiah could be affected by the volatility of commodity prices. However, on a longer-term basis, we expect some stabilisation and reversal of underperformance of the two currencies,” said HSBC chief investment officer (CIO) of fixed income for Asia-Pacific Cecilia Chan in a media conference call yesterday.

“This is because the concerns about political instability in Malaysia have been reduced and foreign investors’ interest in Indonesia shall increase on the back of improvements in its macroeconomic fundamentals,” she added.

“Malaysian bonds and equities seem to have stabilised at the moment, and we are turning from underweight to slight overweight on the country, which could offer ‘relative value’ opportunities — attractive potential returns when compared to global alternatives with similar risks — in the near term,” concurred HSBC investment analyst Nilang Mehta.

“Sector-wise, we are overweight on utilities as their earnings tend to be relatively stable and there is an upside potential in yield. On the other hand, we are underweight on the Malaysian banking sector as it is experiencing a downturn in the credit cycle, during which non-performing loans and credit costs are expected to rise,” he said.

Looking ahead, the global macro environment still remains relatively positive despite slower economic growth and potential periodic scares triggering bouts of stock market volatility, according to Bill Maldonado, HSBC CIO for Asia-Pacific.

“As such, we continue to favour equities over safer assets such as government bonds and cash. Our clear preference on a sector level is for cyclical stocks, as they look the most attractive from a profitability and valuation perspective; these stocks have yet to realise their full potential,” he said.

“Geographically, we are positive on Asian emerging markets, based on their stronger fundamentals and attractive valuations, which have fallen to levels last seen during the global financial crisis. Another reason why Asia is a bright spot for growth is that Asia has generally benefited from a strong reform agenda, which has tackled a myriad of issues, such as financial and agricultural reform, improved governance and labour market improvements,” he added.

These are especially visible on the country level, in markets such as India and China. On China, Maldonado believes that there seems to be excessive pessimism regarding China’s outlook, and thinks investors should look past the headlines and take a balanced approach to investing in China.