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CURRENCY FLOAT
Finally, we have our currency un-peg! What’s going to happen to our stock
market? Are we going to see an exodus of funds due to the currency gains that
the speculators were anticipating? In the contrary, today (22th July 2005), at the
point of writing at 9:10am, KLCI has gained 15 points (1.6%) to 934, highest
peak in 5 years time! Indeed a great opportunity for short term gain, especially
those investors who play on the technical indicators. However, if you’re
looking at a long-term capital appreciation, please watch out! There are three
reasons why I said that: (1)interest risk, (2) currency risk, (3) inflation risk.
Interest Risk
Alan Greenspan has reiterated the stance of the US Federal Reserve to increase
interest rate from the current 3.25% to 4% by the end of 2005. As US dollar is
depreciating further due to their twin deficits (deficit in current account and
budget deficit), we might see the rate hike to continue towards next year, 2006.
As such, Malaysia and the rest of the world might follow the US footsteps (to
raise interest rates) to prevent money from moving away from Asia to the US.
With raising interest rates, it will hurt local businesses and thus, the stock
market as well.
Currency Risk
From 21st July 2005, our currency will be under a managed float system. Which
means our currency is no longer peg as US$1 = RM3.80, instead RM is
managed with a basket of trade-weighted currencies. These currencies are
mainly Asian currencies. Hence, if US dollar were to depreciate against these
currencies, our RM will move stronger at RM3.50 (may be?) My concern here is
that if within one year our currency has strengthened against US dollar by as
much as 10% (RM3.42), we might see an exodus of funds from our country as
speculators earlier who parked their money in Malaysia will take profits then.
Inflation Risk
No doubt crude oil prices are breaking historical high, and its going to head
north until the whole world demand for crude oil has come down quite
significantly (like a recession might help), by then due to demand and supply,
and also due to speculations, the crude oil price may reverse. As for now, crude
oil prices are rising, it will be too costly for our government to subsidise us.
According to Sin Chew daily (22nd July 2005), we might raise the gasoline
price by 5% in August 2005 or about 7 cents. Imagine if crude oil prices were to
reach US$80 per barrel, as predicted by some economists in the US, what will
happen to our gasoline? There will be serious cost push inflation then.
Conclusion
Besides the above macro picture, genuine investors would also study the
company thoroughly, look at the PE ratio, price to NTA, dividend yields, profit
margin and so on. Hence, never rush into the stock market, stay calm and be
patient!
Happy investing,
Pauline Yong
Finally, we have our currency un-peg! What’s going to happen to our stock
market? Are we going to see an exodus of funds due to the currency gains that
the speculators were anticipating? In the contrary, today (22th July 2005), at the
point of writing at 9:10am, KLCI has gained 15 points (1.6%) to 934, highest
peak in 5 years time! Indeed a great opportunity for short term gain, especially
those investors who play on the technical indicators. However, if you’re
looking at a long-term capital appreciation, please watch out! There are three
reasons why I said that: (1)interest risk, (2) currency risk, (3) inflation risk.
Interest Risk
Alan Greenspan has reiterated the stance of the US Federal Reserve to increase
interest rate from the current 3.25% to 4% by the end of 2005. As US dollar is
depreciating further due to their twin deficits (deficit in current account and
budget deficit), we might see the rate hike to continue towards next year, 2006.
As such, Malaysia and the rest of the world might follow the US footsteps (to
raise interest rates) to prevent money from moving away from Asia to the US.
With raising interest rates, it will hurt local businesses and thus, the stock
market as well.
Currency Risk
From 21st July 2005, our currency will be under a managed float system. Which
means our currency is no longer peg as US$1 = RM3.80, instead RM is
managed with a basket of trade-weighted currencies. These currencies are
mainly Asian currencies. Hence, if US dollar were to depreciate against these
currencies, our RM will move stronger at RM3.50 (may be?) My concern here is
that if within one year our currency has strengthened against US dollar by as
much as 10% (RM3.42), we might see an exodus of funds from our country as
speculators earlier who parked their money in Malaysia will take profits then.
Inflation Risk
No doubt crude oil prices are breaking historical high, and its going to head
north until the whole world demand for crude oil has come down quite
significantly (like a recession might help), by then due to demand and supply,
and also due to speculations, the crude oil price may reverse. As for now, crude
oil prices are rising, it will be too costly for our government to subsidise us.
According to Sin Chew daily (22nd July 2005), we might raise the gasoline
price by 5% in August 2005 or about 7 cents. Imagine if crude oil prices were to
reach US$80 per barrel, as predicted by some economists in the US, what will
happen to our gasoline? There will be serious cost push inflation then.
Conclusion
Besides the above macro picture, genuine investors would also study the
company thoroughly, look at the PE ratio, price to NTA, dividend yields, profit
margin and so on. Hence, never rush into the stock market, stay calm and be
patient!
Happy investing,
Pauline Yong
| A&A Morning Glory Learning Sdn Bhd |
| A&A Morning Glory Learning Sdn Bhd |
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