KUALA LUMPUR: Crude oil prices may rebound to US$80 (RM290) a barrel in three to five years, according to Franklin Templeton Investments.

 The global investment management firm, which manages US$880.1 billion in assets, sees a price rebound in anticipation of less upstream investments amid current low prices that will curb supply of the commodity.

Templeton Global Equity Group executive vice-president and portfolio manager Alan Chua said less investments for oil and gas (O&G) exploration and production would also bolster oil prices, going forward.

“There are not very much investments going into finding new reserves. That sets it up for a long-term undersupply,” Chua told reporters at the launch of the Templeton Global Equity Fund yesterday.

Yesterday, oil prices rebounded following a substantial overnight decline on Wednesday. Reuters reported oil prices had earlier fallen 6% on a shock jump in US crude inventories and record Saudi output, although analysts say sentiment remained bearish.

Brent crude was up 52 US cents at US$56.07 a barrel, while US crude rose 55 cents to US$50.97 a barrel. Both benchmarks dropped around US$3.50 on Wednesday.

Franklin Templeton Investments said minimal changes to the current imbalance between oil demand and supply could eventually help push prices higher.

In the current oversupply landscape, Chua said the imbalance could diminish amid political instability in oil producing countries, and world economic recovery.

Political instability in major producers is expected to curb oil supply, while world economic recovery is anticipated to generate higher demand for hydrocarbon resources.

“So what I’m trying to say here is that if a slight change in supply where further instabilities occur in oil producing countries, you can see the imbalance going away very quickly.

“Or if you see economies recover more strongly, that (imbalance) could disappear very quickly as well,” he said.

Chua also believes that valuations in Malaysia’s equity market are trading at a premium, including other Asean equity markets.

He said opportunities in earnings growth versus valuation are lacking in the country compared with developed markets.

“[Market valuation in] Malaysia is not cheap. The multiples in the Philippines are (also) very high. So is (the market valuation in) Indonesia and Singapore,” he said.

Chua is of the view that investors here should geographically diversify their investment portfolio as they are “overexposed” to Malaysian equities, which he described as the “home bias effect”.

Elsewhere, Chua is bullish on the energy, healthcare and banking and financial sectors, especially in Europe.

“We think that valuations in Europe are the cheapest they have been in decades in terms of price to earnings, cyclically adjusted relative to the US. There is a lot of catch-up potential in earnings and valuation,” he said.

Franklin Templeton Investments will launch the Templeton Global Equity Fund on April 13, which is a wholesale fund structured as a feeder fund that invests up to 95% of its net asset value into the Luxembourg-registered FTIF Templeton Global Fund.

This article first appeared in The Edge Financial Daily, on April 10, 2015.