Thursday, August 14, 2008

Ringgit Depreciation, an over-reaction?

Just a little bit of Ringgit depreciation cause many to react. Analysts make comments as if Ringgit is going to continue to depreciate against US $ with no U-turn. Now they are calling those with exposure to US $ revenue to be atractive and those with US $ cost exposure to be unfavorable.

One needs to clear their minds not to over react to news on the newspaper. These guys will make comments to create volatility to prop up trading fees or have no idea of what they are talking about. Intellignet but lack of insight. I believe US $ rally is a bear market rally, most have just started to reduce exposure of Euros and probably shifting a bit back to US $. The rests are just noise, some of commodities like gold and Asian currencies get into sympathy selling. The market is trying to find a new balance. I still believe Ringgit worth RM 2.90 to 1 USD despite of confidence is wobbling. Bank Negara spent a few billions to facilitate the foreign funds retreat in an orderly manners. Long term trend of Ringgit is UP unless our government is stupid enough to run big budget deficits. By the end of the day, it is the rule of relativity wins -- I believe Asia will suffer the least damage from the slowdown.

(13 Aug TheEdgeDaily)The local currency continued its downward trend for an eighth straight day yesterday, hitting the year’s low at 3.3350 to the US dollar. It closed at 3.3250 to the greenback as at 5pm, against 3.3160 on Monday.

The ringgit’s weak performance has largely been attributed to the US dollar’s gains against major currencies. Analysts also expected slower exports to result in further declines in the ringgit.

Speaking to The Edge Financial Daily, Aseambankers Malaysia Bhd head of research, Vincent Khoo, said the weakened ringgit would be favourable towards plantation companies, such as Sime Darby Bhd, which had seen a downtrend in crude palm oil prices.

Other beneficiaries of the ringgit decline included companies with exposure overseas, especially those in the oil and gas sector, Khoo said. “A counter that comes to mind is KNM Group Bhd which has businesses contracted in US dollars,” he said.

He added the current environment could warrant a review of the research house’s outlook for the ringgit which was originally expected to significantly appreciate against the US dollar.

Jupiter Securities Sdn Bhd head of research, Pong Teng Siew, also said the fall of the ringgit would be an advantage to exporters and plantation companies, although the benefits would not be very clear-cut due to the current inflation spell.

“At a basic level, exporters would benefit from the ringgit decline but not by very much as margins are already thin due to inflation,” Pong said. “Even if goods (sold) are cheaper, overseas demand is lower as a result of a slowdown in the European Union, China, and the US. So, the weaker ringgit may not help improve volume significantly.”

He said the setback in the local currency would, however, paint a slightly better picture for the palm oil sector as it helped to stabilise the declining price of the commodity.

On the outlook for the ringgit, Pong said its decline could last for the most of the current quarter, with its value expected to weaken further to around 3.40 to the US dollar.

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