What does it really mean to invest amidst weakening ringgit

The ringgit is now, and will continue to be weak – no thanks to a perfect storm of hammered commodity prices, weak economic fundamentals (high government and household debts) and the ‘impression’ of political turmoil. The first factor is more widespread as it affects commodity (oil, rubber, palm) dependent country not limited to Malaysia, but Australia as well (which is why you see MYR doesn’t change much against AUD)

That the above seemingly the rational reasons are actually NOT the paramount factor that lands us in this painful reality. Even though ringgit fell to 1997-1998 economy crisis level, we must be rational and dissect beyond the surface.

Huh?

The broader, global view is that many developed/developing nations are also experiencing a devaluation of their currencies. The difference is, while ringgit decline is due to external forces and political concerns (both beyond anyone’s control), other currencies are deteriorating because their governments are engineering those declines.

Evidence: Global currency devaluation. We are worst in Asia but not the world. The top non-performing currencies – Russia, Colombia, Brazil, Turkey, Norway, Australia, and Mexico.

Why?

Despite many years of money-printing in a low interest rate environment in order to stimulate the economy, growth is not as encouraging.

This is compounded when emerging market sell-off.  Funds are flowing out of emerging market.
Back in 2008, money flow into emerging market due to weak economy in the developed countries. Now, money flow out and move to established country especially the US due to strengthening outlook. Therefore, the demand for greenback is high, emerging market currency is the reverse- demand low.  When demand low, things become ‘cheaper’ and hence it is same as being devalued.

So how?

Last resort for central bank is to play with monetary policy – devalue home currency so export are more competitive.

Competitiveness not in terms of quality, but in terms of cost-effectiveness.

Analogy 1: Apple is competitive in terms of quality – commands a higher premium due to branding too

Analogy 2: Malaysian engineers are competitive because MNC pays less salary compared to US counterparts

Analogy 3: I’d like to think Xiaomi is competitive in terms of quality and competitiveness (never mind the lack of innovation due to being Apple copycat as Apple fanboys claim)

Sound bizarre? It is. Nonetheless, it is rampant globally.

Yuan devaluation

In early August, economy giant – China, joined the game. It devalues Yuan, making its exported products and services cheaper. China government target is to ensure a 7% economic growth by doing this.

Not too hard to understand in a pasar malam environment. You, the nasi lemak street vendor, lower your price so much to spark a price war among your competitors. So people will buy more at a lower price.

Still no one buying at lowered price? You lower it again until buyer find it too hard to resist. 20 cents for a packet of nasi lemak perhaps?

In the long term, this is a dangerous because all other sellers will be out of business; only the seller with the lowest cost survives.

Never mind if you and I are partners in the business of selling nasi lemak, and a ‘destroying’ the nasi lemak market in the process.

It is happening, no kidding

When China engineer a devaluation of its Yuan, it basically injured everyone it does business with, including Malaysia. But it went ahead anyway, for the greater good of its own economy.

Ringgit devaluation is not ‘engineered’, so to speak. So why not join the crowd? It is not as if Malaysia foreign reserve is enough to prevent the decline anyway. A cheaper currency also supports export sales (like gloves from Malaysian top glovemakers), so why rock the boat?

What will be the final outcome anyway?

Remember that money is just an exchange tool. It is worth nothing by itself unless backed by something of value which humanity value. Like real estate properties. Everyone’s basic need includes a shelter, yes?

So, good time to really invest in property? Now with the above in mind…don’t it sound absurd when people say, currency and market is volatile, hence don’t invest and don’t buy property…crash is coming?

Adapted from Khoo Hsu Chuang, Focus Malaysia 22 Aug.

This Post Has 2 Comments

  1. so, sir, is it a good time to invest in the real properties market?

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