Exchange Recovery
On 10 Oct 2007, there was an article on Business Times that briefly highlighted NTU professor’s views on the exchange rate. I am not an economist and my understanding of complex economic theory is limited. But I do know what happened before and after 1997. But firstly, the following is an extract of the article:
“While South-east Asian nations are now better prepared for an exchange rate crisis, none of the original Asean 5 economies have regained their pre-crisis exchange rate parity, which suggests that their economies may not necessarily be more robust now…..
According to Prof Lim, an East Asian exchange rate crisis is unlikely in the foreseeable future as all the Asian nations affected during the crisis 10 years ago have good balance of payment surpluses and have accumulated a great deal of foreign exchange reserves.
Moreover, all - except for Hong Kong and some Gulf States - have adopted a floating exchange rate regime, which creates a cushioning effect on exchange rate movement. On top of that, the relevant regulatory authorities have more experience in regulating the exchange rate system now.
However, he cautioned, this does not necessarily mean South-east Asian nations are much more robust from all perspectives. 'None of the original Asean 5 economies, including Singapore, have regained their pre-crisis exchange rate parity. The Indonesian rupiah, at 9,143 rupiah to one US dollar, is still 275 per cent lower than the pre-crisis rate of 2,433 rupiah. Only the Singapore dollar has rebounded quite close to the pre-crisis level.'
Prof Lim also said that the US should consider a general devaluation of its currency. 'The US cannot continue to borrow money from abroad to finance domestic consumption and heavy external commitments indefinitely……”
Strong Currency - Risk & Rewards
You may be excited to know that right now, Singapore currency worth approximately S$1.47 against US$1. we had recovered our lost ground since 1997 Asia Financial Crisis. If this goes on, very soon, we are going to set new historical record and this will be on the headline. I remember that before the Asia Financial Crisis, I invested on a listed company known as CM Tel (Hong Kong telecom company). The stock was traded in board lot of 7,000 shares and in US dollar. Within a few weeks, the stock price rose and this was soon translated into both capital gain and currency gain. Not bad for an amateur.
Ten years later, history repeated again. Today, there are lesser US dollar-traded stocks on the SGX as many had converted into Sing$ or no longer listed. But investors must be careful when investing in stocks that trades in US dollar. This is because our exchange rate, although is free floating, is not 100% free float. The MAS, our central bank, allows the exchange rate to move within certain undisclosed band. In my opinion, it’s not a good sign that our currency continues to appreciate for the fact that Singapore is an export economy. Our growth depends heavily on foreign demand especially from Europe and US. Therefore, my best guess is that MAS will allow Sing$ to be weakened. Since there is greater uncertainly, I would really avoid investing in assets that transact in US dollar. This may includes stock, foreign currency bonds etc.
In his note, Professor Lim brought up an important issue which I have been asking that question for many years. Unfortunately, to-date, nobody can offer me a reasonable answer. Professor Lim mentioned that the US Government cannot continue its borrowing activities. We know that the US is the largest borrower and had reported budget deficit for many years. And I had been asking: “can US continue to enlarge its debt such that one day it becomes an astronomical figures”? I still couldn’t find an answer. But one of my friends in the Army shared with me his view. He said that the US is the most powerful and biggest
market in the world. She is also the biggest borrower. To keep everything in tact, the world must support the US especially its currency. This is because if the US collapsed and bankrupted, she will pull down global economy (who knows may spark off a depression) and everyone will get nothing out of it. It’s like the quote (reverse) from the movie Titanic – “I jump you jump”. Or perhaps quote from billionaire Donald Trump – “if you owe bank a million, you are in trouble. But if you owe bank a billion, the bank is in trouble”.
Notwithstanding my view that we (retail investors, non-currency experts) should avoid investment in foreign currency, this is a good time to go for holiday. And that’s exactly what I am going to do in November with my strong Sing$.
On 10 Oct 2007, there was an article on Business Times that briefly highlighted NTU professor’s views on the exchange rate. I am not an economist and my understanding of complex economic theory is limited. But I do know what happened before and after 1997. But firstly, the following is an extract of the article:
“While South-east Asian nations are now better prepared for an exchange rate crisis, none of the original Asean 5 economies have regained their pre-crisis exchange rate parity, which suggests that their economies may not necessarily be more robust now…..
According to Prof Lim, an East Asian exchange rate crisis is unlikely in the foreseeable future as all the Asian nations affected during the crisis 10 years ago have good balance of payment surpluses and have accumulated a great deal of foreign exchange reserves.
Moreover, all - except for Hong Kong and some Gulf States - have adopted a floating exchange rate regime, which creates a cushioning effect on exchange rate movement. On top of that, the relevant regulatory authorities have more experience in regulating the exchange rate system now.
However, he cautioned, this does not necessarily mean South-east Asian nations are much more robust from all perspectives. 'None of the original Asean 5 economies, including Singapore, have regained their pre-crisis exchange rate parity. The Indonesian rupiah, at 9,143 rupiah to one US dollar, is still 275 per cent lower than the pre-crisis rate of 2,433 rupiah. Only the Singapore dollar has rebounded quite close to the pre-crisis level.'
Prof Lim also said that the US should consider a general devaluation of its currency. 'The US cannot continue to borrow money from abroad to finance domestic consumption and heavy external commitments indefinitely……”
Strong Currency - Risk & Rewards
You may be excited to know that right now, Singapore currency worth approximately S$1.47 against US$1. we had recovered our lost ground since 1997 Asia Financial Crisis. If this goes on, very soon, we are going to set new historical record and this will be on the headline. I remember that before the Asia Financial Crisis, I invested on a listed company known as CM Tel (Hong Kong telecom company). The stock was traded in board lot of 7,000 shares and in US dollar. Within a few weeks, the stock price rose and this was soon translated into both capital gain and currency gain. Not bad for an amateur.
Ten years later, history repeated again. Today, there are lesser US dollar-traded stocks on the SGX as many had converted into Sing$ or no longer listed. But investors must be careful when investing in stocks that trades in US dollar. This is because our exchange rate, although is free floating, is not 100% free float. The MAS, our central bank, allows the exchange rate to move within certain undisclosed band. In my opinion, it’s not a good sign that our currency continues to appreciate for the fact that Singapore is an export economy. Our growth depends heavily on foreign demand especially from Europe and US. Therefore, my best guess is that MAS will allow Sing$ to be weakened. Since there is greater uncertainly, I would really avoid investing in assets that transact in US dollar. This may includes stock, foreign currency bonds etc.
In his note, Professor Lim brought up an important issue which I have been asking that question for many years. Unfortunately, to-date, nobody can offer me a reasonable answer. Professor Lim mentioned that the US Government cannot continue its borrowing activities. We know that the US is the largest borrower and had reported budget deficit for many years. And I had been asking: “can US continue to enlarge its debt such that one day it becomes an astronomical figures”? I still couldn’t find an answer. But one of my friends in the Army shared with me his view. He said that the US is the most powerful and biggest
market in the world. She is also the biggest borrower. To keep everything in tact, the world must support the US especially its currency. This is because if the US collapsed and bankrupted, she will pull down global economy (who knows may spark off a depression) and everyone will get nothing out of it. It’s like the quote (reverse) from the movie Titanic – “I jump you jump”. Or perhaps quote from billionaire Donald Trump – “if you owe bank a million, you are in trouble. But if you owe bank a billion, the bank is in trouble”.Notwithstanding my view that we (retail investors, non-currency experts) should avoid investment in foreign currency, this is a good time to go for holiday. And that’s exactly what I am going to do in November with my strong Sing$.
