The brave new rules in a brave new world by Bank Negara have set many tongues a-wagging. The media has been having field day slamming the “likely causes” of a weakening ringgit. Let’s not get into that for now – we all know whats bringing it down. Let’s address the consequences, the aftermath … for now.
A weak ringgit is not all bad, unless you are travelling or importing stuff. Just travel domestic, and I don’t have much sympathy for traders, I mean, they do not really add value, they just import and distribute at a higher price. If they cannot pass the price increase onwards, then biz will be affected, so let it be.
The fact that from now on companies have to convert 75% into ringgit of their proceeds IS A VERY MAJOR THING. I suspect the majority of listed companies with foreign proceeds have been largely keeping them in foreign currency for the last 12-18 months.
Let’s be honest here, the ringgit is suffering largely due to the “confidence” issue, if our own major exporters keep keeping their foreign currency proceeds and not convert to ringgit, it can only exacerbate the situation. Its like your family has a crisis and all your members are deserting the clan.
Then there are the exporters who are appealing for that figure to be 50% instead of 75% in order to keep buying “raw materials and goods”. That very appeal shows that they have been keeping much more than 75% for I don’t know how long – what about the “supernormal gains” these exporters have been reaping from “translation gains” for the past 12-18 months … somehow just vanished in thin air!!??
Now, they cannot do it. I think for at least 1/3 of the listed firms that have been profitable, being forced to convert to ringgit will actually realise a lot of gains. Yes, these gains are one-off but still gains. Fr profitable exporters, they’d be profitable already at 3.5 to the dollar … give them 4.0 or 4.4 … they are laughing silently.
So, yes, Bank Negara has fast forwarded the next bull run, which I anticipate will NEED a few ingredients:
1) better oil prices (done, with the recent OPEC deal)
2) China led investments – construction, infra
3) strengthening ringgit from lows – done with BN’s latest move
4) the speculation over upcoming elections
You will be getting very good results from most affected listed companies for their next 2 quarters – which will be further catalyst to the run.
So, you heard it here first!