Wednesday, 26 August 2015

Ringgit sinks below 3 to the Singapore dollar for first time ever: 24 August 2015

Rush as ringgit falls to RM3 to S$1
By Marissa Lee , Jose Hong and Yvonne Lek, The Straits Times, 25 Aug 2015

Customers flocked to the money changers to snap up ringgit yesterday after the Malaysian currency crossed the psychological threshold of three to the Singapore dollar.

A snaking queue had formed at Crante Money Changer in People's Park Complex when The Straits Times visited during lunch hour.

Most customers were exchanging amounts of around $200 to $300 as they expected the ringgit to fall further.

The ringgit went off sale in some places as money changers opted out of the market, fearing they would get their fingers burned in the light of the ringgit's violent price swings in recent months.

"It's very volatile. Today we don't want to buy, don't want to sell because people are expecting three ringgit (to one Singdollar). We didn't bring in much stock because if we did and couldn't sell it, we'd make a big loss. We'll bring some in tomorrow," said Mr Mohamed Rafeeq, owner of Clifford Gems & Money Exchange at Raffles City.

The ringgit crossed the three-to-one line at around 9am yesterday, taking its cue from the crash in stock markets across Asia that followed China's surprise yuan devaluation two weeks ago.

The ringgit fell about 1.4 per cent yesterday to settle at 3.0166 to one Singdollar - and leaving it down 19 per cent from a year ago.

"My relatives in Malaysia are suffering... Their children are studying in the polytechnics here and they have to give them pocket money, but when they change it into Singdollars, they don't get a lot," retiree May Koo, 59, told The Straits Times at People's Park Complex.

The cheaper ringgit has also prompted a 32-year-old civil servant who owns a land plot in Iskandar to revise his retirement plan. "The low ringgit makes it more feasible for me to build a retirement house, because if I sell (the land) now, I'm not going to get back the money," said the man, who wanted to be known only as Mr Yeo.

And while Singaporeans may enjoy a psychological lift when they cross the border to shop this weekend, the tourism story looks less cheerful the other way around.

"Malaysia and Indonesia, whose currencies have weakened against the Singdollar, account for more than a third of tourist arrivals into Singapore. Our hospitality sector will be hurt if their currencies bring them less bang for their buck," said CIMB economist Song Seng Wun.

But analysts believe the ringgit will not stay at this level for long.

"Markets have been in overshooting mode because of the convergence of negative news - falling oil prices, political turmoil, China," said UBS Wealth Management foreign exchange strategist Tan Teck Leng. "In the long term, the ringgit is really undervalued and such a level should not persist on a 12-month basis."

Singapore businesses in Malaysia rattled by ringgit's fall
By Marissa Lee, The Straits Times, 27 Aug 2015

The ringgit's startling fall left some Singapore businesses in Malaysia fearing a repeat of the 1997 Asian financial crisis is looming.

Take home furnishings boss Chan Chong Beng. When he signed contracts three months ago to deliver carpets and wallpaper to his Malaysian clients, the ringgit was about 2.69 to one Singdollar.

"By the time we collected the money, it was over three (ringgit) to a dollar. We didn't expect it to go so steep! That easily takes off 15 per cent of our net profit," said Mr Chan, who heads Goodrich Global.

Contracts sealed in Malaysia have traditionally been denominated in ringgit, a practice that is hard to change despite the currency market volatility around the world. Malaysian firms have been less willing to denominate the contracts in Singdollars, added Mr Chan.

To be sure, the divergence between the two currencies has never been this sharp: just five years ago, the Singdollar was equivalent to 2.30 ringgit. Fifty years ago, the two currencies were on a par.

But the ringgit has shed 20 per cent in value over a year as the commodities-exporting nation suffers a prolonged oil price rout and brewing political turmoil. As of 8pm last night, one Singdollar could buy 3.0356 ringgit. The Malaysian currency had weakened briefly to as much as 3.05 ringgit to one Singdollar in the morning.

"The signs of a crisis are quite imminent. In 1997, it was something like this," said Mr Chan.

But analysts are more sanguine, noting that firms today are much less exposed to United States dollar debt. "This is not a repeat of 1997. Most corporates across Asia today are more well-diversified in their funding," said Credit Suisse senior currency strategist Heng Koon How.

And while the weak ringgit and rupiah point to Malaysia and Indonesia having the worst foreign reserve metrics across Asia, reserve ratios across the rest of the region are much more robust than in 1997, Mr Heng added. So while traders in the import and export game may have to revise their business models, other firms are not deviating from their growth plans. "In the consumer space, it's business as usual," said Sakae Holdings chairman Douglas Foo. "The fundamentals in the country are still sound, so we continue to look for good sites to expand. The weaker ringgit impacts our financial statements but in reality, we don't realise the losses because we're not taking the money out of the country."

Slide of ringgit and rupiah: What's the impact?
Both the ringgit and rupiah have come under pressure in currency markets, continuing to fall to record lows. Our correspondents in Kuala Lumpur and Jakarta take stock of the impact of the currencies' slide.
The Straits Times, 26 Aug 2015

Exports, tourism dip despite fall
By Shannon Teoh, Malaysia Correspondent in Kuala Lumpur, The Straits Times, 26 Aug 2015

Some retailers in Johor are ringing up more sales but Malaysians studying overseas say they have had to tighten their belts, both the result of the embattled ringgit.

However, exports and tourism - two sectors that usually benefit from a cheaper domestic currency - have dipped in a worrying sign.

With the ringgit falling below the psychological level of three to the Singapore dollar, Johor's state government expects an extra RM50 billion (S$16.6 billion) to flow into its economy from Singaporean tourists and Malaysians working in Singapore.

Johor Premium Outlets has seen more Singaporean shoppers, according to its chief operating officer Jean Marie Harry.

"The reasons are obvious. It's about the strength of their dollar," he was quoted as saying by the Malay Mail.

The ringgit has traded around 4.2 to the US dollar in the past week and is Asia's worst-performing currency in the past year - a situation attributed to worsening global demand for Malaysia's exports, China's yuan devaluation, plunging commodity prices and questions surrounding Prime Minister Najib Razak's continued leadership.

Despite the fall, which has surpassed most forecasts for this year, Malaysians have largely been shielded from imported inflation as most trade partner currencies have also weakened against the dollar and transportation costs have eased due to lower fuel prices. The June producer price index saw imported inputs up just 0.6 per cent from a year ago.

"For most businesses in Malaysia, their fuel costs are higher than currency costs," MIDF Amanah Investment Bank's head of research Zulkifli Hamzah told the Bernama news agency.

Datuk Seri Najib said yesterday that the impact from the current economic troubles was cushioned by "unpopular and painful" reforms implemented by his administration, adding that the situation "would be worse" if the reforms had started only now.

A Bloomberg poll of analysts showed the ringgit averaging 4.27 next year.

For some sectors, the ringgit's fall has not been good news.

A cheaper currency usually attracts more tourists, but tourist arrivals were down 8.6 per cent in the first quarter year-on-year, with those from China falling a whopping 27 per cent.

Meanwhile, exports have not benefited from lower commodity prices. While the fall has helped to keep inflation low, it has hammered Malaysian businesses that produce palm oil and petroleum products or work downstream in these major sectors.

Government-linked Felda Global Ventures, the world's largest crude palm oil producer, recorded just RM92.69 million in profit from its palm oil business in the first half of this year, less than a third of the figure in the same period last year.

State petroleum company Petronas, Malaysia's only Fortune 500 company, saw its second-quarter earnings dip by 47 per cent to RM14.6 billion, with oil prices now nearly 60 per cent lower than a year ago.

Both Felda and Petronas, which accounts for nearly a third of government revenue, said they expect more difficulties to come.

Malaysian exports fell 2.2 per cent in the first half of the year, shrinking the trade surplus.

The weak ringgit means Malaysians studying overseas have had to rethink their budgets.

Even those on scholarships say they have to economise.

"I still have to tighten my belt," said Mr Eekmal Ahmad, 35, adding, "my savings... seem so small now that I may have to punch more holes in my belt".

Indonesia moves to contain panic
By Zubaidah Nazeer, Indonesia Bureau Chief in Jakarta, The Straits Times, 26 Aug 2015

For the third time in two days, property consultant Anjelin Dian joined a queue in downtown Jakarta yesterday to change her US dollars into rupiah, which has fallen about 12 per cent so far this year.

"When the rupiah plunged even further on Monday, I thought this was the best time to change some US dollars and keep the cash for expenses over the next few months," she told The Straits Times, adding that she had changed nearly US$10,000 (S$14,200).

Money changers have reported longer-than-usual queues since the Indonesian currency fell to about 14,000 against the US dollar on Monday. It fell to as low as 14,085 yesterday, the weakest since the Asian financial crisis in 1998.

Similar queues could be spotted at banks, while travel agencies here say they are seeing a drop in bookings for year-end holidays.

Asia's second-worst-performing currency this year after the ringgit took a further beating in Black Monday's global sell-off.

As Finance Ministry and central bank officials announced a slew of measures to contain the panic, President Joko Widodo reached out using social media.

"Come, let's work together to overcome the weakening rupiah by buying local products," he tweeted on his official Twitter account.

The weakening rupiah comes amid a slowdown in the Indonesian economy, which grew at under 5 per cent in the first two quarters of the year, the slowest pace in six years.

The slowdown is mainly due to the sluggish economy of China - Indonesia's biggest trading partner - which has led to lower demand for commodities such as coal.

In Indonesia, imported goods have become expensive, with some goods costing up to 50 per cent more. Consumer spending has shrunk in line with the bleak outlook, leading to growing dissatisfaction with the government.

In an attempt to shore up support and exert control over the economy, Mr Joko reshuffled his Cabinet two weeks ago, replacing his economic and trade ministers.

On Monday, he gathered governors, mayors and other local leaders and instructed them to spend their budgets before the end of the year to help spur the economy.

To soften the latest blow to the rupiah, the Finance Ministry said it would buy back government bonds to calm the market.

Central bank chief Agus Martowardojo urged exporters to sell off their foreign currencies to create a balance in the country's foreign exchange condition.

Some sectors, such as textiles, are worried as they depend on imports of raw material.

Mr Ade Sudrajat, chairman of the Indonesian Textiles Association, said the weak rupiah has made the sector less competitive as 80 per cent of its raw materials are imported. "It not only affects the price of our goods but also raises the risk of job cuts," he said, citing how 36,000 workers have lost their jobs since the start of the year.

Dr Martin Panggabean, chief economist at IGIco Advisory, said Indonesia's stronger banking sector ensures that there will not be a severe situation as in 1998.

"This is panic-driven, so the central bank has the right approach, which is, don't intervene too much," he told The Straits Times.

"What the government needs to do now is to convince the market that its banking sector is sound, limit the liquidity rush and manage the volatility instead of strengthening the currency," he said.

Referring to countries that have spent millions trying to prop up their currencies, he said: "In this kind of situation, however much you pour into the market, it is going to go into a black hole."

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