By Bloomberg News
March 6 (Bloomberg) -- Investors should use options to simultaneously bet against the Singapore dollar and in favor of the ringgit as the market has overreacted to potential for Malaysian currency to weaken ahead of nation’s election, according to Citigroup.
* Ringgit traded at 3.1071 per U.S. dollar yesterday, having weakened 1.4% this year; currency trimmed losses after government data showed Malaysian economy expanded 6.4% in three months through December, most since 2010
* Singapore dollar has weakened 1.9% in 2013, most among Southeast Asian currencies; factory output shrank 9.2% from month earlier in January, worst performance since December 2010
* “The Singapore dollar has very limited upside given weaker- than-expected growth and inflation data in January, while Malaysia has a strong growth story,” Arup Ghosh, a Singapore-based hedge funds strategist at Citicorp Investment Bank, says in interview. “The recent selloff in the ringgit was only because of fears of a disorderly outcome in the elections. If the current government does stay in power, the underperformance of ringgit could quickly reverse.”
* Investors should buy three-month puts on SGD/MYR cross at 2.50 and sell three-month puts at 2.45; payout ratio vs premium of 0.7% is 3:1
* “This is a positive carry trade, so even if nothing happens and we stay where we are, the trade should perform,” Ghosh says
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