US Interest Rates and Malaysian Ringgit Outlook

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US Interest Rates and Ringgit outlook

Paul Ho – 9782 8606 (Save my number)

By Paul HOMBA.Macq, B.Eng(Hons)

www.iCompareLoan.com

Contact: 9782-8606 (sms)6100-0608

http://www.iCompareLoan.com/

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What is iCompareLoan.com •The talk will review macro level economic view of the world’s economics, US interest rates, how inter-related funds will flow and what that will mean for the Ringgit and regional currencies. There will be a short update of oil prices and global economic outlook and how to steer a safe path in this volatile economic environment.

Synopsis

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What is iCompareLoan.com – a FinTech Company that does… •www.iCompareLoan.com is a Loan Portal and a Mortgage & Loan broker, helping property buyers and home owners to get the best fit home loan and business owners obtain Business loans for business expansion. •Home Loan Report ™ is Singapore’s first Cloud based Home Loan Report ™ platform to be used by Property agents, financial advisors as well as other Mortgage brokers to prepare reports for their customers. •Home Loan Report ™ - Enterprise allows a property agent’s website to immediately add a loan section. Improve your Google Ranking, let’s viewers increase Time-on-site. Property or Finance sites that deployed Home Loan Report ™ - Enterprise loan section sees viewers stay on their site longer by between 30% to 350% after 4 to 8 weeks of installing the Embedded Loan Plugins.

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About Paul HO •Paul holds an a B.Eng(Hons) Aberdeen University (UK) and a Masters of Business Administration (MBA) from a Macquarie Graduate School of Business (MGSM) Australia and has distinctions in finance and economics. He also serves as current President of Macquarie University Alumni Association of Singapore and is former Hon-Sec of British Alumni.

•He is founder of www.iCompareLoan.com, his articles have been syndicated/featured on STproperty, SRX, iProperty, BTInvest, TheEdgeProperty, Propwise, Propquest, Yahoo and TheOnlineCitizen amongst many other sites. He has also been quoted in XinMin, Hk’s South China Morning post.

•He has also given speeches, trainings and/or seminars at NUH Lunch time talk, iProperty, David Poh and Associates, Propnex Commercial Elite, Getty Goh’s Ascendant Asset class, NTU (Guest Lecture on SEO), Panel discussions at GPS Alliance, C&H, Skillup just to name a few.

•He is passionate about helping people enhance their wealth and in making money work harder for them.

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About Paul Ho



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US Interest Rates and Ringgit outlook

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What do countries manage and why?

Managing the Holy Trinity

Free Capital Flow

Sovereign Monetary policy (setting Interest rates, printing money)

FreeExchange Rates

Can only choose Max 2 of 3

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Managing Interest Rate & Money Supply


Free Capital Flow

A interest rate = 5%, B SETS interest rate = 2%

FreeExchange Rates

AB

AB

B A

B lose capital to A

BA

B Currency loses value

BA

A Currency Gains value

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Managing Exchange Rate


Free Capital Flow

B interest rate DROPSA interest rate rises

ManagedExchange Rates

AB

AB BA

A loses capital to B

B A

Managed appreciation of B Against A currency

BA

AB

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Where is US interest rate heading?

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Source: TradingEconomics, iCompareLoan.com

US Interest Rate

Peak employment

High Interest rate Approaching PeakEmployment???

Rising Interest rate?

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Source: TradingEconomics, iCompareLoan.com

US Interest Rate

Federal Reserve Target Inflation 2%

Exceeds 2% target rate

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Source: CNBC, Getty Images

US Interest Rate

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Source: Worldbank, iCompareLoan.com

US Interest Rate

Does the US really care about foreign markets?

Does the US care about the rest of the world? A little, maybe.

Trade is only a small part of the US economy

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How does US manage its policy?

•Interest Rates & Money supply (M1, M2, M3) is used as a lever.

What Affects US interest rates?

•Inflation affects interest rates. FED targets an inflation rate of 2%. •Fuller Employment is one of the contributing factors to inflation. (Domestic consumption accounts for almost 70% of GDP).

Does the US really care about foreign markets?

•Maybe very little. The US probably care about the STOCK markets rout causing an adverse effect on domestic economy.

US Interest rates

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Snapshot of the world’s economy

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Snapshot of the TOP 4 economies – Part 1


Source: Worldbank, TradingEconomics, central bank of selected countries, iCompareLoan.com

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Snapshot of the TOP 4 economies – Part 2



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Snapshot of Other selected Economies – Part 1



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Snapshot of Other selected Economies – Part 2



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Inflation in selected economies – Collated by Worldbank, iCompareLoan



Rising Inflation: US, Malaysia, HK, Philippines, Cambodia

Decreasing Inflation: EU, Japan, China, Vietnam, SGP

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Interest Rates in Selected Countries

Source: iEconomics, iCompareLoan.com

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Debt-to-GDP ratio of selected economies

On a Macro basis, Malaysia’s Debt is NOT that bad


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Outlook for Ringgit and SGD

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What is Currency strength based on?

Outlook for Ringgit and SGP

ConfidencePersonal Safety

Economics

Legal Framework

Environmental

GDP ReservesTechnology and Innovation

Military

Culture

Productive capacity

Debt-to-GDP

Budget

Currency Exchange

Balance of Trade

Capital Controls

Monetary policy (Interest, supply)

Political and governance

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Malaysia - Areas of Concern – Orange, Positives – Green.


ConfidencePersonal Safety

Economics

Legal Framework

Environmental

GDP ReservesTechnology and Innovation

Military

Culture

Productive capacity

Debt-to-GDP

Budget

Currency Exchange

Balance of Trade

Capital Controls

Monetary policy (Interest, supply)

Political and governance

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Low crude Oil prices will kill Malaysia?


Source: Centre of International Development, Harvard

Malaysia’s Exports, 2014 Malaysia’s Imports, 2014

Low reliance on Crude Oil exports. Lower revenues from Crude Oil offset by Imports of Mineral Fuels, etc.

However, Lower Crude oil means lower revenues from Petronas’ contribution to revenues. (Impact on budget)

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High Household Debt a Concern


Source: McKinsey Global Institute

>10% increase in household Debt, ~60% Increase in Prices.

10+% increase

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Malaysia’s Holy Trinity


Monetary – Bank Negara•Slight raise in interest to mitigate funds outflow.

Exchange Rates

No Capital ControlsRM weaken against USD and SGD, SGD weaken against USD

Source: Bank Negara, TradingEconomics

Source: Oanda

Exchange is done On-shore

Stock market is one Place where portfolio

Funds keep their capital.

Source: FTSC KLSI, TradingEconomics

Susceptible to SHORTING by

speculators, leading to Exit of Ringgit.

Higher US InterestRate = Funds outflow

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Summary and key take-away

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Speculators – Hedge funds are Major Culprits

Summary and Key take-away

“The fixing of the ringgit against the US dollar is currently done onshore through a spot fixing mechanism monitored by Bank Negara. The mechanism of fixing the rate onshore or in the domestic market removes certain elements of arbitrage and speculation.” TheStar, Suresh Ramanathan, 08 Aug 2015.

There is another mechanism to speculate the Ringgit, offshore away from Malaysia. This is the Non-Deliverable Forward (NDF), which are traded in Singapore, London and New York. Currencies are deemed over-valued or undervalued against the USD using the implied NDF yield spread. (TheStar, iCompareLoan)

“Bottom-line, it’s not the macro view ala top-down that affects the ringgit. It’s the trading arbitrade in the currency that truly plays a significant role for the ringgit’s current predicament.” (The Star, Suresh Ramanathan, 8 Aug, 2015)

In Short, it’s Speculation that is Hurting Malaysia, not fundamentals.

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Political instability is a wildcard. Take a 5 to 10 years outlook

•If Malaysia comes under intense speculative attacks, some form of capital controls may be introduced. (Reference to 1997/1998) Be prepared to hold longer term.•Malaysia has not become less competitive. Fundamentals have not changed yet.•Malaysia has solid infrastructure and personal safety index is way higher than many countries, despite the occasional robbery.•Assets look relatively cheaper, though property prices are elevated.•Investors can consider buying hard assets such as plantations, or farm land, selective good properties.•Can even invest in Malaysia or set up offices here.

Summary and Key take-away

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Disclaimer

Economy & Finance

US Interest Rates and Malaysian Ringgit Outlook