USD virtually has zero interest rate since 2008 or around the max interest rate one may get is 0.25%.

One may be better off with investment in USD asset like stock or treasuries or bonds.
But this subjected to risk of the particular asset that may drop down in value.

This is the dilemma that always facing by investors.
There is no "safe" or "secured" place.

If USD economy doesn't revive back even after then QE and poise to rate hike, we won't see the USD strength like what is happening currently.

The point of diversification of asset is not about making gain, but to "protect" your wealth, or normalise your investment.

Eg.
You have FD, Bonds, stock.
We know these 3 asset class doesn't correlate each other and most of the time have inverse correlation.
When FD low, stock high.
Bond low, stock high
FD low, bond high

But you still diversify into these 3 asset class, as you always have something to compensate in whatever situation, aka your wealth is more "protected", instead of invest all in stock, when stock market plunge, you lose all, or invest all in bond but when bond price dropped time, you lose big.

Concentrate on single asset can be a risky, but if turns out to be good, you win big, if not same magnitude to the loss side.
But. it is up to individual risk preference.
There is no right and wrong.

There are stocks that enable one to hold long term without much sweat as well.
Typically dividend stocks, every year the stock gives your 3-4% dividend, you have "cash in" the return, while still have the same number of shares. 10 years later you have "cash out" 30~40% of the investment made, whether how the stock price roller coaster, you still have the money in the pocket already.

It may because of massive QE that skew the normal inverse correlation, especially on bonds, whereby bond dropped to extremely low yield previously.

Thailand fiscal deficit situation is better or lesser than Malaysia
Foreign currency reserves situation is better, with little outflow capital concern.
Lower oil benefit for oil importer country, bad of exporter like Malaysia.

Current RM depreciation is not solely of fundamental side of issue, confidence and perception always play import role in short term volatility movement that may overwrite the fundamental.



This post has been edited by cherroy: Sep 10 2015, 02:29 PM

The less investors coming in previously, the less investor going out.

The less money want to outflow, the more stable your currency.

Actually it is not something too surprise, as Malaysia fundamental may not top notch like Sg but it is not too bad either.

Not true and no such thing of currency goes to whatever level, that country will "announce" bankruptcy.

Worst situation is a country defaulting its sovereign bond or loan commitment. No such of 'bankrupt" and close shop.

A country cannot go "bankrupt" one.

This post has been edited by cherroy: Sep 15 2015, 09:19 AM

Value cap to buy undervalued stock or not, has little to do with RM nor direct effect on real economy specifically.

Today rate is not "accurate" as market and banks are off for holiday.

Unless China want to trigger worldwide currency havoc, I think it is unlikely.
There is no reason for them to do so currently and with current situation.

Previously they 'tested" the market with 3% devaluation, already caused so much turbulence in the market as well as sink the stock market severely which hurting themselves as well in the process.
The aftermath, the PBOC did intervene the Yuan by buying it aggressively in the market to stablise the situation, already signalled they did not want to see too much turbulence in the market.

Nobody wants to do something that benefit no one.

There is something called "baked in" the news already.

Financial market doesn't wait something to react.
It reacts way before hand.
Buy and rumour, sell on news.

DJ did spike up a lot when the news of no rate increase broke out, but soon profit taking sent it back down.

May be investors think deeper, wait, Fed no increase rate because economy not so strong, hence take a wary stand.
Just like as you have mentioned, sometimes thing is not as simple yes and no.

Rate increase - stock market should come down, but why rate can increase, because economy good and inflation, but economy good, stock market should go up as corporate earning will be good.
Rate decrease - stock market should go up, but why central bank decrease rate? because economy no good. Economy no good, corporate earning would be poor, stock should go down.

That's why analyst always have endless story to tell and reports to write, which can be a high pay lucrative job.

A lot of time, forecast is not materializing one.

Mind that early 2000, there was a time oil price fell below USD20, which was a supply destruction factor, that lead to non-stop bull run in oil price afterwards that sending price to USD140.
So oil price if staying at low point for a period of time, it could be repeating the history of another supply destruction as last time. We can see many oil company are reducing their capex significantly which could limit the future supply capacity.

Had anyone forecast oil will be USD40, when oil price was USD140 time?
Almost none, all said going to be above USD150 or USD200

Had anyone forecast USD will be so strong when QE started time?
Many said USD will be worthless instead.

The more people forecast on same path, the likelyhood it won't occur.
If forecast always materialize as what it forsee, then making money in the market become extremely easy, lot of people can become rich just based on forecast.
Yet, in reality it is not.

The susceptible outflow is those hot money created during massive QE previously, while there are foreign funds in for long haul as well.
So easy comes one, easy goes.

The more important is the economy fundamental, if the economy fundamental is intact and good, and poses value for foreign investors (FDI not those hot money in and out stock market one) to come in to invest, then foreign investors will come naturally.

No one can forever rely on those short term foreign hot money, they are like firework, seems beautiful but won't last long, but you have to clean up the mess afterwards.

With inflation subdue due to low commodities price across, Fed's interest hike won't be too much.
In fact, it may be the one of major factor that holding back the hike that anticipated to be happening yesterday.

Ability to peg your own currency is all down to how much foreign currency reserves and current account balance situation.

As the problem of pegging the currency, is when a person takes your currency want to exchange to foreign currency, you must have to enough coffer of the foreign currency to pay the person.

The downside of pegging is that you have no flexibility in the exchange rate and interest rate which may be needed for the economy, particularly when the target of pegged currency soaring.

When RM depreciated 30%, it just indirectly means extra 40% income as earning of oil is always in USD term.
Last time selling at USD50 can get RM150 (at Rm3.00 vs USD), now selling at USD, can get RM212.50 (at RM4.25)

When currency depreciation, inflation follow suit.
Inflation - price of goods rise.
Price of goods rise, more GST collection, as GST is counted in % towards the price.

But this is at the expense of inflation impact, and this is why a country needs to have their own currency instead of a common currency like Euro.

1. Buy at USD, sell at USD, no impact.
Last time, sold a barrel of oil at USD 50, earned USD20.
Now even USD vs RM become RM4.25, they still earned USD20.

But the USD20 now become more.

2. Yes, that's why we see Petronas and oil company earning drop, and why commodities related countries currency all dropping.

As said, it is the expense of inflation that everyone need to face.

Our wages got more "expensive" or not?
The answer is so obvious.
So labour cost become cheaper. So not every cost rise if you look at company level perspective.

While when RM depreciated to RM4.25,
Last time if you got RM100 bil foreign investors that want to repatriate the money back, BNM need to fork out USD33 bil from foreign currency reserves to exchange it.
Now at Rm4.25, BNM only need to fork out USD23.5

Don't get me wrong, I am not advocate for a weak currency, but just to point out the dynamic of currency depreciation effect.
Nobody like a depreciated currency.

When oil well shut down and no new exploration or abandoned unprofitable oil well due to massive cut in capex, supply will be capped, by then, supply glut goes away, price creeping up.

Fracking oil producers also don't want to see oil price at USD40.

Oil price may stay lower for a year or 2 to 3 years down the road, but it won't last forever on low point.
If world economy pick up, demand will rise back up one.

This is another repeating history of oil glut during early 2000.

Business is very simple one, not profitable, supply will die down itself.

This is pure finance section, political nor conspiracy theory is not welcomed.

Ty.

The situation now is USD strong + RM weak.

Purely on USD strong factor without Rm own weakness, RM properly should be around RM3.70~3.90 in tandem with regional currency.

Just like what happened during 2008, whereby during the global financial crisis, USD being highly chased after time (USD strong) , USD/RM at one time went to around RM3.70.

Just need to look from a basket of currency and compared with regional currency and compared it with USD, then we already can know it is purely USD strength or own currency weakness.