Speaker 1: You're listening to a CNA podcast.
Speaker 1: Welcome back to the Money Talks podcast. Confession Time. How
Speaker 1: many of us were tempted to rush down to the
Speaker 1: nearest money changer? The moment we found out that the
Speaker 1: Malaysian currency had hit a high of 3.4 against the
Speaker 1: Singapore dollar. I have to tell you that
Speaker 1: was very real for me because like many Singaporeans, I
Speaker 1: love a little joint in JB. Could drive to Malacca
Speaker 1: maybe even hit up K L. What's not to love
Speaker 1: about the Malaysian food and all the shopping? Not forgetting
Speaker 1: the massages? I mean, when you convert that money,
Speaker 1: it is just that much sweeter when you get more
Speaker 1: bang for buck. Well, for your Singapore buck at least.
Speaker 1: So in this episode, we wanted to get a little
Speaker 1: crash course on currency fluctuations and how it can help
Speaker 1: or even hinder us. And if we can even make
Speaker 1: money off of these so-called lucrative rates to unpack it
Speaker 1: all I have with me. Anya Rodriguez, she's a research
Speaker 1: analyst at Value Champion. Hey, welcome to.
Speaker 1: Hi, lovely to be here. Ok. So let's start with
Speaker 1: what happened. We saw all that's happened in the currency markets,
Speaker 1: latest search, I mean 3.4. That's mind blowing. This is
Speaker 1: up 4.15%. I did the math uh since the year began.
Speaker 1: Can this go even higher? You think? Can we look
Speaker 1: at 3.63 point seven?
Speaker 2: So obviously I'm not able to predict where the,
Speaker 2: the exchange is going to go. But from MA S standpoint,
Speaker 2: how we fix our currency exchanges is usually through a
Speaker 2: policy called Sneer, the Singapore dollar nominal effective exchange rate.
Speaker 2: So unless MA S changes, that I'm not really able
Speaker 2: to say what's happening on the Malaysian side, whether the
Speaker 2: exchange rates will change. But you never know with inflation changing.
Speaker 2: And like Malaysia's domestic economy changing, there's always a chance
Speaker 2: that
Speaker 2: exchange rates will keep fluctuating and we will keep seeing
Speaker 2: that amazing Singapore to Malaysia ring exchange. Do
Speaker 1: you go to Malaysia often? I mean, now that we
Speaker 1: have this really advantageous currency exchange,
Speaker 2: not as often as I would like probably, you know,
Speaker 2: maybe beginning of the year went to JB for the day,
Speaker 2: you know, do your hair, do your nails, classic.
Speaker 1: I mean, why not? Right? OK. So like as I
Speaker 1: said earlier, I went to rush out exchange my dollars
Speaker 1: for the ring. It is this a good move though?
Speaker 1: Should I be the typical Singaporean? The moment the exchange
Speaker 1: rate hits a high again, I should change as much
Speaker 1: as possible. Should I be doing that?
Speaker 2: I mean, you're never going to be able to predict
Speaker 2: what's going to happen. But if you're comfortable with the
Speaker 2: current exchange rate, why not? Right. Like if you think
Speaker 2: that you're getting a good bargain, go for it,
Speaker 2: the thing is that how much more it can change
Speaker 2: is probably not that great. So, if you are happy
Speaker 2: with what it is now, then just change your money now,
Speaker 2: I guess.
Speaker 1: Are there rules that I need to be aware of?
Speaker 1: For example, money changers, they have set amounts that they're
Speaker 1: allowed to change before they are so called sold out? Right.
Speaker 1: So are there these kinds of unwritten rules that I
Speaker 1: need to be aware of when I'm exchanging my sing dollars?
Speaker 1: I
Speaker 2: think because as a personal consumer,
Speaker 2: the amount that we're changing is so little, we don't
Speaker 2: really have to consider like what these money changers will
Speaker 2: have to consider on their scale of changing money. So
Speaker 2: if you're concerned about exchange rates always fluctuating. The other
Speaker 2: thing that you can also think about is maybe if
Speaker 2: you have things like you trip or revolut and
Speaker 1: those are the multi currency cards. Yes, exactly.
Speaker 2: So
Speaker 2: instead of having to rush down to that money changer
Speaker 2: every single time you want to lock in that good
Speaker 2: exchange rate, you can always do it virtually as well
Speaker 2: and then you can do it in smaller amounts more frequently.
Speaker 2: And as,
Speaker 1: and when you're comfortable, you can do more you can
Speaker 1: do less at any given time. Actually, we did have
Speaker 1: an episode about multi currency cards and it's like stored
Speaker 1: value almost right when you have a digital wallet where
Speaker 1: you can store a different currency at the time,
Speaker 1: because the sing dollar is that much stronger. Right. How
Speaker 1: much would you recommend? I do,
Speaker 2: I personally don't change more than a few 100 at
Speaker 2: a time unless I know I'm like stocking up for
Speaker 2: a big trip that I'm going for. Yeah, because I'd
Speaker 2: rather not have all of my money tied up in
Speaker 2: foreign currency in the first place. Smart
Speaker 1: move, smart move and on that note, right. Can you
Speaker 1: please please explain to me
Speaker 1: why currencies fluctuate so much? I mean, is this something
Speaker 1: that is specific to the current economic conditions? Because we
Speaker 1: have high inflation, high interest rates, things are a bit
Speaker 1: haywire or is this something that is pretty typical?
Speaker 2: So currencies will always fluctuate for many different reasons, but
Speaker 2: primarily it all boils down to supply and demand of
Speaker 2: your currency at the end of the day. Right? So
Speaker 2: if there's more supply, then the prices will come down
Speaker 2: and that can be dependent on many different things. Of course,
Speaker 2: demand the same way it works with demand.
Speaker 2: So if you export goods or if you sell things
Speaker 2: like your domestic goods in the foreign market, people will
Speaker 2: have to buy it in your home currency. So that
Speaker 2: will increase the demand for your currency and that can
Speaker 2: be all sorts of different things. For example, even if
Speaker 2: you want to invest in foreign assets, you have to
Speaker 2: do it in that foreign currency. So that will increase
Speaker 2: the demand for that currency as well. Yes, mainly to
Speaker 2: do with demand and supply. So, of course,
Speaker 2: right now we're experiencing high levels of inflation. So then
Speaker 2: some countries are experiencing higher levels of inflation than others.
Speaker 2: And so some countries currency will be affected by that
Speaker 2: more so than others. And that in turn will also
Speaker 2: cause foreign investors to think of your currency to be
Speaker 2: more of a safe haven. I see. Yes. So for example,
Speaker 2: in the region, our currency is fluctuating a little bit
Speaker 2: less than some of maybe the other
Speaker 2: Southeast Asian currencies. So that can cause investors in the
Speaker 2: region to maybe want to buy into Singapore asset.
Speaker 1: Oh, so actually the strongest sing dollar is attractive to investors,
Speaker 1: especially
Speaker 2: if your dollar fluctuates less because then you have less
Speaker 2: risk involved in because they're
Speaker 1: seeing. Oh, that's pretty, there's a pretty good level of stability.
Speaker 1: It doesn't swing a lot. I'm going to put my
Speaker 1: money in this place. Yes. Ok. But doesn't that
Speaker 1: mean though when it comes to imports and exports, if
Speaker 1: my memory tells me correctly, a stronger sing dollar means
Speaker 1: your exports are going to be more expensive. Wouldn't that
Speaker 1: dampen demand then? Because if your exports are going to
Speaker 1: be expensive, whether or not the buyer is going to
Speaker 1: be able to afford, it comes into question. Right. Yes,
Speaker 2: definitely. So actually, MA S does have like a goal
Speaker 2: for the ex Singapore dollar and their goal is to
Speaker 2: slowly and gradually appreciate the Singapore
Speaker 2: dollar. And what you said is definitely true with the whole,
Speaker 2: like if your currency is stronger, your exports are now
Speaker 2: more expensive. But in Singapore's case, because we import a
Speaker 2: lot of our materials to our factors of production as well.
Speaker 2: So our imports will now be cheaper with the stronger dollar.
Speaker 2: So we
Speaker 1: make more money. That's nice to know. Yes. And
Speaker 2: also because we are considered to have very high value exports,
Speaker 1: also the perception of expensive exports from Singapore
Speaker 1: already exist.
Speaker 2: Exactly. So our exports are not as sensitive to high
Speaker 2: exchange rates compared to maybe some other country.
Speaker 1: That's fascinating. Ok, so obviously we all know what the
Speaker 1: M E s has done in order to curb inflation.
Speaker 1: It's an unconventional method that is near, right. Well, we
Speaker 1: know the impact on the economy as you've just explained.
Speaker 1: But what impact does it have on the Singaporean people?
Speaker 1: How do we benefit or not benefit from a stronger
Speaker 1: Singapore dollar?
Speaker 2: Well, of course, the most direct thing is now your
Speaker 2: online shopping is also much cheaper, right? Yes. So if
Speaker 2: anything that we're consuming that is denominated in foreign currencies
Speaker 2: will now be considered as cheaper to us. So that
Speaker 2: can be your vacations, that can be your online shopping.
Speaker 2: And also the main reason why the MA S has
Speaker 2: been trying to appreciate the Singapore dollar is purely because
Speaker 2: our inflation tends to be imported since we import everything.
Speaker 2: So that also means that
Speaker 2: for us, the idea is that now at home, we
Speaker 2: will also experience a little bit dampen effects of inflation.
Speaker 2: But then the idea is also that without this appreciation
Speaker 2: of exchange rates, we might be paying even more domestically
Speaker 2: because then now imported goods will be even more expensive.
Speaker 1: So it is pretty important to keep that sing dollar
Speaker 1: a float. Yes, for a considerable length of time.
Speaker 2: Yeah, at least for us as consumers definitely to our benefit.
Speaker 1: Ok. Ok. That's good news.
Speaker 1: There was a time in the middle of last year
Speaker 1: when it seemed that the China we're familiar with was
Speaker 1: a completely different place when the rest of the world
Speaker 1: moved on from the COVID-19 pandemic. As many as 300
Speaker 1: million Chinese people were under some form of a mandatory lockdown.
Speaker 1: There were only two things on my mind to find
Speaker 1: food and to not go crazy.
Speaker 1: Then suddenly the people decided to take things into their
Speaker 1: own hands
Speaker 1: for the first time in more than 30 years, protests
Speaker 1: swept through China and just like that cove ended.
Speaker 1: Join me, we do for a look back at the
Speaker 1: extraordinary year in China and hear how it might have
Speaker 1: changed the country for good
Speaker 1: Red Wall inside China's Zero COVID World A two part
Speaker 1: podcast series by C N A. It's available now on
Speaker 1: the C N A and me, listen, apps, Spotify, Apple
Speaker 1: and Google podcasts.
Speaker 1: Let's now talk a little bit about tips on handling
Speaker 1: cash if
Speaker 2: you're thinking about holding cash. One thing that I thought
Speaker 2: was a bit interesting is that now a lot of
Speaker 2: banks are offering foreign denominated fixed deposit and the interest
Speaker 2: rates on those look so much more attractive than Singapore
Speaker 2: denominated fixed deposits. The reason that they're giving you this
Speaker 2: better interest rates is because you are taking on the
Speaker 2: currency risk, right? You don't know which way the currency
Speaker 2: is going to fluctuate. So maybe that's something you want
Speaker 2: to consider if you are a little bit more of
Speaker 2: a conservative investor. But
Speaker 2: some foreign currency exposure, you can also think about foreign
Speaker 2: currency fixed deposits. But again, you have to understand if
Speaker 2: the foreign currency depreciates against the same dollar, then you're
Speaker 2: not getting that full return because you have to account
Speaker 2: for the loss in the currency exchange.
Speaker 1: This naturally means that things are going to be expensive
Speaker 1: for tourists visiting us just thinking about the Malaysian people
Speaker 1: who live and work here. Suddenly their cost of living
Speaker 1: increases as well because
Speaker 1: yes, they are earning in sing dollar, but they're also
Speaker 1: paying higher because of that stronger Sing dollar. So I
Speaker 1: guess it's a higher in but it's also a higher out.
Speaker 2: Well, I guess for Malaysians who are working and living
Speaker 2: in Singapore to them, the majority of their lifestyles already
Speaker 2: denominated in Singapore dollar. They don't see that difference. But
Speaker 2: now if they send money back home, that's a huge
Speaker 2: difference to them. Yeah. So, I think more so this
Speaker 2: will affect people who are crossing the border every day,
Speaker 2: who are living in Ring and now have to spend
Speaker 2: daily in Singapore. That's
Speaker 1: painful. Ok. But what about the tourists? Do you think
Speaker 1: that the stronger Singapore dollar means that
Speaker 1: tourists are going to think twice about coming to Singapore
Speaker 1: for a visit? Because things are just that much more expensive.
Speaker 2: I think it will definitely be a factor. But from
Speaker 2: my understanding, we do tend to attract a lot of
Speaker 2: like higher net worth tourists. You know, people come to Singapore,
Speaker 2: come to orchard road like that's what they think. So
Speaker 2: maybe to this level of tourists, they're not going to
Speaker 2: feel the impact of exchange rates as much.
Speaker 1: Ok. Yeah. Ok. But what about the mid income tourists?
Speaker 1: They might feel the pinch a
Speaker 2: little bit more. I think so. And also even as
Speaker 2: you and I can tell things just generally, even in
Speaker 2: sing dollar are getting more expensive in Sing dollar. So
Speaker 2: then to have that be compounded with the Singapore dollar
Speaker 2: being even more expensive relative to their home currency. That
Speaker 2: will definitely, they can definitely feel the pinch Ok,
Speaker 1: so the stronger sing dollar,
Speaker 1: I see it as benefiting us when we're spending in
Speaker 1: Southeast Asia, for example, even, I guess even Australia, you
Speaker 1: could consider it. I mean, the last I checked it
Speaker 1: was 1 to 1.1. I'll take that does the strong
Speaker 1: sing dollar have the same impact in
Speaker 1: say the UK or the US further a field where
Speaker 1: the currencies there do tend to be as stable as Singapore.
Speaker 1: How does it compare in terms of impact?
Speaker 2: So the US dollar is kind of like seen as
Speaker 2: the world reserve currency, right? So most of the time
Speaker 2: when our domestic policies are not going to have an
Speaker 2: impact on the US dollar. And up until recently, the
Speaker 2: US dollar was quite high against the SING dollar. I
Speaker 2: think it was almost up to 1.4% at one point.
Speaker 2: So for us, the US dollar was appreciating against the
Speaker 2: Sing dollar. So for us, that was a little bit
Speaker 2: not to our advantage. So because their currency markets are
Speaker 2: probably much larger than ours, their demand for their currency
Speaker 2: is much larger than the demand for the same dollar.
Speaker 2: So I think we will have a little bit less
Speaker 2: impact in that regard. I don't think going to the
Speaker 2: US is that much cheaper now, I don't think it
Speaker 1: will ever be cheaper. Unfortunately, that's just the nature of
Speaker 1: the US dollar. The Greenback has always been known to
Speaker 1: be that powerful that influential on the rest of us.
Speaker 1: It's the king of the bus,
Speaker 1: right? The other aspect about the sing dollar strength that
Speaker 1: I wanted to throw across to you is when it
Speaker 1: comes to investments, right? At money talks, we always want
Speaker 1: to find out how is this going to affect my portfolio? Right?
Speaker 1: How is this going to affect the funds I'm investing in?
Speaker 1: So
Speaker 2: when it comes to investing, it may not be that
Speaker 2: good of a thing. If you're investing in foreign denominated
Speaker 2: assets like stocks, for example, let's say you're investing in
Speaker 2: Australian stocks and you bought it a year ago right
Speaker 2: now that the Singapore dollar has appreciated against the Australian
Speaker 2: dollar that will actually eat into your returns on your
Speaker 2: Australian stocks. Because for example, if your stock has gone
Speaker 2: up 10% but the Singapore dollar has gone up 2%
Speaker 2: against the Australian dollar, then now your real returns will
Speaker 2: only be about 8%.
Speaker 1: So it shrinks my returns. Yes.
Speaker 2: Whereas on the flip side, if you're investing in something
Speaker 2: that is appreciating against the Singapore dollar, maybe the US dollar,
Speaker 2: your returns will now be outside
Speaker 2: because you get the returns on your asset as well
Speaker 2: as the increase in the appreciation in the currency. If
Speaker 2: you convert it back to sing dollar.
Speaker 1: What about investing in local
Speaker 2: stocks? People think that when you invest in local companies
Speaker 2: that you are not exposed to exchange rate, currency risk
Speaker 2: at all actually you have to watch out for what
Speaker 2: you are investing in because a lot of companies they
Speaker 2: also operate in foreign markets, right? So they have foreign
Speaker 2: derived income. So if there's an exchange rate
Speaker 2: that their foreign derived income may also fluctuate.
Speaker 1: Wow. Ok. See I completely miss, yeah.
Speaker 2: So you have to be a little bit wary. People
Speaker 2: think about this a lot when they're thinking of us companies,
Speaker 2: for example, the example people like to give is Nike
Speaker 2: because Nike is a US company. So you think of
Speaker 2: them as, oh, as long as the US economy is
Speaker 2: doing well, Nike will be doing well. But actually Nike
Speaker 2: only derives 46% of their income from the US market
Speaker 2: and because they sell globally and the rest of it
Speaker 2: is international.
Speaker 2: So then if for example, the euro has a fluctuation
Speaker 2: against the US dollar and maybe the Euro goes down,
Speaker 2: then their foreign derived income can also decrease but then
Speaker 2: they report on their balance sheet in US dollar. So
Speaker 2: then their gross profit margin. I know it sounds a
Speaker 2: bit technical but like that will be lesser because of
Speaker 2: the income currency exchange.
Speaker 1: No, I get that. I get that and I I
Speaker 1: think you've explained it really, really well there because I'm
Speaker 1: pretty sure every other
Speaker 1: investor out there particularly retail investors will be thinking along
Speaker 1: those lines that you just mentioned like, oh if it's
Speaker 1: a US based, I'm pretty sure it's going to do. Well,
Speaker 1: because by virtue of the fact that the US dollar
Speaker 1: is already stronger than the Sing dollar, I'm safe. But
Speaker 1: you have to look at the company's financials, you actually
Speaker 1: have to look at and assess the company's financials. Think
Speaker 1: about how much of their income actually comes from the
Speaker 1: US market. Right.
Speaker 2: So, if you're thinking of it in a Singapore context,
Speaker 2: I think about the,
Speaker 2: the most is usually to do with reeds. Sores are
Speaker 2: like a way to invest in real estate, right? And
Speaker 2: a lot of Singapore reeds have foreign properties where they're
Speaker 2: getting foreign rental income. Yeah. So you have to see
Speaker 2: like how much of their income is actually from foreign
Speaker 2: economies and whether that will affect their own. So if
Speaker 1: I'm investing in an that is in the US or
Speaker 1: the bulk of my revenue is going to come from
Speaker 1: the US market, that generally means I'm alright.
Speaker 2: Yes, because the US dollar is strong. So when you
Speaker 2: convert it back to the same dollar, it's still good. Ok.
Speaker 2: Whereas if they're investing in European assets, for example, then
Speaker 2: that might not be so good for us because right
Speaker 2: now the Euro is a little bit weaker. Wow,
Speaker 1: that was an eye opener because it really does make
Speaker 1: you think about your portfolio and really reconsidering what the
Speaker 1: strategy should be. That being said though,
Speaker 1: does this mean that I should be rooking my portfolio now?
Speaker 1: And changing my strategy and ducking out or what should
Speaker 1: I be doing then
Speaker 1: considering this is where we're at with the sing dollar.
Speaker 2: Well, I think personally there's no reason to be impulsive
Speaker 2: because if we are worried about exchange rates and all
Speaker 2: the more these companies will be worried about exchange rate.
Speaker 2: So actually what a lot of these companies do do
Speaker 2: is they hedge the exchange currency risk on their end.
Speaker 2: So there's a lot of like financial derivatives that they
Speaker 2: can do. So they kind of have more of a
Speaker 2: stable idea of what the currency exchange will be.
Speaker 2: So you can kind of defer this responsibility to some
Speaker 2: extent to the company itself and let them hedge the
Speaker 2: currency risk for you. So what's important for you to
Speaker 2: do it as an individual investor is just to understand
Speaker 2: like what is the nature of the business and whether
Speaker 2: you're comfortable with that. So unless there's some like big
Speaker 2: macro economy thing that is happening, for example, like the
Speaker 2: Russia Ukraine thing,
Speaker 2: you don't want to hold your assets in like Russian
Speaker 2: denominated assets, right? That's
Speaker 1: although I'd be fascinated to find out who has,
Speaker 2: that might be a little bit different, but we're talking
Speaker 2: about smaller fluctuations and in exchange rates then, yeah, I
Speaker 2: don't think there's any need to be impulsive.
Speaker 1: That's fantastic advice. Thanks for helping us dig deeper into
Speaker 1: what the strengthening of the Singapore dollar
Speaker 1: means. And of course, thanks to you our listener. If
Speaker 1: you've enjoyed this episode of Money Talks, there's more content
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Speaker 1: don't you? The team behind Money Talks is Joanne Chan, Jacquelyn,
Speaker 1: Chan Christina Robert Charlene. So, and I'm Andrea Ha.