By Xavier Kong
Tiger has been hearing cries about how the market is not adapting to the circumstances, becoming increasingly unstable. In all honesty, Tiger thinks that the market is indeed adapting to the weakened currency, with the instability being due to other – ahem – factors.
Tiger has heard and read concerns about how the Malaysian market is not adapting to the situation it now faces, with the weakened ringgit against the US dollar, the whole deal with 1Malaysia Development Bhd (1MDB) messing with investor sentiment, both local and foreign, as well as the racially charged situation faced by the nation.
Well, Tiger is not going to touch the whole grilled fish deal, and neither is Tiger going to point at 1MDB this time. Instead, Tiger would like to say a few things in defence of Malaysia’s market.
First off, to all those that say that the market is not adapting, and that it will keep falling, Tiger says open your eyes!
The market is very well adapting, and the fall, to Tiger at least, is actually part of the market’s move to stabilise itself against the disruptive factors that it faces. Of course, the process of adaptation cannot very well happen overnight, but Tiger has seen signs that adaptation is taking place.
One of the signs that Tiger sees is from the plantations sector in Malaysia. With the ringgit being as weak as it is, export-based businesses that deal in the US dollar have seen boons to their balance sheets, due to their revenue being received in foreign currencies, then converted to the ringgit before being reported.
The recent rally of crude palm oil prices is a key indicator of this. While there are other factors in the rally of crude palm oil to RM2,430 per tonne, local planters are boosted by the fact that they report their earnings in ringgit, while conducting their deals in the US dollar, due to crude palm oil being identified as a commodity. In turn, this had acted as a stimulus for the market.
This is, to Tiger, a clear-as-day indicator that there most definitely is adjustment and adaptation by the market to the weakening ringgit.
Yet another sector that has been having a field day in this regard is the manufacturing sector, especially for rubber gloves. As yet another sector that conducts deals in the US dollar, yet reporting its earnings in the ringgit, rubber glove producers are looking at a definite boon from the US dollar strengthening against the ringgit.
The strengthening of the US dollar against the ringgit has also served one other purpose, which was to mitigate the impact of falling oil prices on the ringgit. Yes, the ringgit has fallen 26% this year, but look at that price of crude oil, which is itself conducted in the US dollar. This has served to provide some form of protection to local oil and gas players.
Something else that Tiger thinks should be mentioned here is that, when the ringgit went really low in the crisis of 1997, Malaysia was looking at a current account deficit, due to foreign direct investments at the time. However, in 1998, Malaysia made a turnaround, thanks to the weak ringgit.
Malaysia managed to turn around with a current account deficit and a weak ringgit. Now, Malaysia is looking at a current account surplus. Tiger thinks the chances of Malaysia turning around are good!
All in all, Tiger believes that Malaysia has, at its core, good economic fundamentals. However, the recovery of the market is less hinged upon the weak ringgit, but more upon current events, in Tiger’s opinion.
See, it is not all doom and gloom, is it? Now, if only Malaysia can get the whole donation deal wrapped up and put away, maybe investors would have more confidence in Malaysia again.
Tiger believes that Malaysia will recover from this. The journey might take a while, and a lot of work might have to be put in, but Tiger believes that Malaysia will recover.
GRRRRR!!!
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