The Malaysian Ringgit (MYR) has slumped to an all time low at MYR3.12 to the Singapore dollar (SGD). This sounds like an excellent chance to head to Johor Bahru (JB) and make all the purchases while it lasts. The already cheap food and groceries just got cheaper and fuel is about a third of Singapore’s price.
Like the saying goes, what goes around comes around. We might be rejoicing now that the MYR has spiraled downwards, but in the mid to longer term, the ones that would be suffering the most may be Singaporeans.
Why So Gloomy?
While many Singaporeans may joke about the weak currency and other matters across the border, such as 1MDB scandal and depreciating MYR, we fail to realize that Malaysia is the third largest economy (after Indonesia and Thailand) in South East Asia, with more than 5.5x the population of Singapore.
Further, Malaysia is within the top three largest export destinations for Singapore’s goods and services. This means it has a big influence on the Singapore dollar as well as our the health of our economy. With Singapore being a small and open economy driven mainly by trade and world economics, the amount of wealth we earn is largely derived from overseas purchases. If our currency becomes too strong, Malaysia, and our other trading partners, would have a reduction in demand, which will ultimately reduce Singapore’s earning power.
The short term benefits may be apparent but in the long term, any weaknesses in the economies of our major trading partners will not be good news for Singapore. Of course, we can draw out the entire flow chart of what may happen. Lower GDP growth, weaker economy, lower wage growth and bonus payout, less consumption, even weaker growth outlook, job loss. The end point is really up to our imagination.
What We Can Do To Take Advantage Of This?
As individuals, there are generally just two things we can do about this:
1) Enjoy while it lasts. As individuals, we can head to the moneychangers, buy up some MYR, travel to JB and splurge because we can – with historically high valuations of SGD (relative to MYR), we should definitely consider visiting JB for their delicious food and other goods.
2) Being DollarsAndSense, we take this opportunity encourage everyone to consider investing in Malaysia. If we were to invest in the KLCI Index at 31-Dec-2006, we would have made a handsome return on about 48.6%. This amount does not even take into account of all the dividends that would have been paid during the 10-year period. Although there might have been exchange rate risks to consider, the return thus far would have outweighed the exchange rate risk.
Do note that we should always do our due diligence before investing. Not because currency or other factors are in our favour for the short-term, then we blindly dump money in.
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