1. The Local Businessmen
Major impact of weaker Ringgit will lie heavily on the local businesses; especially ones that practice the exchange trade. While it is certain that our trading partners would need to forgo lesser of their currencies than before, it remains a question how exporters will intend to keep the price. Malaysian exporters now find themselves with a decision to make.
For example, a Malaysian wood exporter sells a kilo for RM100 to the US.
In 2012, the dollar price of the wood was U$ 31.75 (MYR3.15: U$1).
In 2014, the dollar price of the wood is now U$ 28.74 (MYR 3.48:U$1).
Our exporters have a choice to increase profit margin or reduce foreign price. Leaving foreign price at U$ 31.75 in 2014 (or increasing to RM110.49) would increase profit margin while if world market price were implied, it should lead to increase in quantity sold.
While some businesses have local suppliers, there are raw materials that need to be imported like electronics. Depreciation in Ringgit would imply that their cost of buying raw materials is higher. The electronic importers would have to pay more to purchase their supply, leading to lower profit margin. However, the fact that our electronic and electrical industry generally denominates its contract in US dollar cushions the impact of exchange rate fluctuation. On the contrary, our resource-based industry such as production and export of palm oil absorbs the heavy hit when receiving revenues in ringgit.
When evaluating effects of exchange rate on the locals, it is significant to look at the extent of it and why depreciation may not necessarily lead to higher profits.
2. The Investor That Invests In Foreign Markets
For Malaysian investors who invest globally, depreciation of Malaysian Ringgit is beneficial to you right now! Why? Owing to the depreciation of Malaysian Ringgit, foreign currency is worth more right now. Investing in overseas stock market in America, Singapore and Hong Kong allows the exchange of return on investment from the stronger foreign currency to weaker Malaysian Ringgit.
However, you can still utilise your funds by investing in the Malaysian stock market. Owing to recent plummet of crude oil price, the Malaysian stock market was severely impacted, especially the petrol and oil industries. Based on strong fundamentality and Malaysia’s dependency of oil stock, keeping some stock in the oil industry could be a good thing. For example, SCOMI’s (a company in the oil business) share price was RM0.475 on the 18 February 2014. However, on 9 Dec 2014, its share price drastically dropped to RM 0.245. It is no stretch to the imagination of how this could be a good thing to own in the coming days ahead.
3. The Parents Supporting Their Children Abroad
The cost for Malaysians to study abroad is no small sum, and the burden has now escalated as MYR slid heavily against major currencies.
The rising cost of tuition fees makes education abroad even more unaffordable for Malaysians, coupled with the higher tuition fees imposed on international students from the European Union. Some universities adjust and revise their fee structure upwards year on year, piling on pressure on parents on top of the currency stress.
Besides tuition fees, the maintenance of living expenses in a foreign land will now increase as Malaysians will now have to factor in the currency drop in Ringgit.
4. Malaysians Working Overseas
Just like students studying abroad, Malaysians working overseas will have to pay for rental and living fees but faces less impact as the earnings will be in a stronger foreign currency.
Families of those working abroad will benefit from this depreciation as higher remittance back home will be expected.
Of course, the benefits of this only comes if you’re working in a country whose currency is stronger than the Malaysian ringgit.
There is no one person who plays the winner or loser role in the event of Ringgit depreciation, but rather people are a mixture of both, albeit a little heavier on one end.
We can see tourism operators having a positive demand surge while the general public frets about their shrinking purchasing power.
To face less impact on the Ringgit depreciation it would be advised to practice good consumerism and spend more on local goods that aren’t affected as much as foreign goods due to foreign exchange fluctuations.
The overall exchange rate won’t be a bigger factor on it versus imported goods.
Who Wins And Who Loses When the Ringgit Depreciates is the perfect read for those interested in finding out more about how this issue is effecting our economy.
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