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Who Wins and Who Loses When the Ringgit Depreciates

Updated 18 Nov 2019 – By Loanstreet

Most readers will have been through the 1997 Asian currency crisis but how many of us still remember the panic brought about by the disastrous slump of the Ringgit that lasted for a year? Today, our beloved currency has seen plenty of ups and downs, but has endured thus far. In general, here are some winners and losers behind the Ringgit’s slide.

Following on from our previous article Ringgit Downfall: Are you The Beneficiary or The Victim? 

WIN: Technology firms, Glove manufacturers, Tourism industry

These are the firms who rely on overseas exports for majority of their revenue. Whether you like it or not, some of the top technology firms (such as JCY international, Malaysian Pacific and Green Packet Bhd) in Malaysia are very large global suppliers of the products they manufacture here in Malaysia. Other than that, Malaysia is the largest glove supplier in the world partly because of the abundance of rubber plantation. As for the tourism industry, according to our Minister for Culture and Tourism Datuk Seri Nazri Aziz, he is someone who is happy to see the Ringgit depreciate because of the benefits it brings to promoting tourism here in Malaysia.

If you are aspiring to become an entrepreneur have a read of our article What Entrepreneurs Do Not Tell You and find out some of the key areas you should consider before taking your first steps.

LOSE: Airlines, Automotive industry, Power sector

Companies in these industries are mainly importers whose input costs are paid in foreign currencies. Airlines often lock in a fixed period of oil purchasing agreement paid in USD therefore the falling Ringgit will hit the airlines really hard for every flight that they operate. Similarly, the automotive sector is another industry that buys materials from overseas. While the power sector's increasing reliance on international coal would mean additional cost on exchange rate loss, the high debt burden denominated in USD is also a deep concern.

WIN: Ringgit Loan

Unfortunately, foreign investors may now be more willing to take Ringgit denominated loans due to the lower down payments and monthly installments being. However, most locals might not feel the impact as we earn and spend within our country.

Find out the best interest rates offered by banks with our Home Loan Comparison tool here.

LOSE: Foreign Currency Loan

Unless the currencies earned are performing even worse, such as Ukrainian Hryvnia, Brazilian Real and Turkish Lira, corporates are the ones who feel the heat almost instantly because many have loans or bonds denominated in other currencies. On the other hand, Malaysians who derive their income overseas are generally safe, but what makes things go from bad to worse is that when you are a Ringgit earner and you have to pay up to 18% more on the foreign loan if compared with the instalment payment a year ago.

WIN: Singapore, China, Japan, United States...

These countries are the largest buyers of Malaysia’s goods. It’s easier to understand their likely behaviour this way: why wouldn’t you buy more groceries and store them for future use when you see huge discounts in a shopping mall and you know that the warehouse sale will not last for a long period?

Wonder what do they mainly import from Malaysia? Singapore and China buy electronic equipment; Japan buys liquified natural gas; and United States buys semiconductor products.

LOSE: Bank Negara

We see a seemingly defenceless Bank Negara who only tried to comfort the people by expressing their optimism towards the future outlook. Are we going to witness the foreign reserves running empty just like what happened in 1997? Most likely no because the situation today is not as bad as that of the Asian Currency Crisis and our foreign reserves are less vulnerable.

WIN: Foreign Investors

Yes, foreign investors will be smiling when they see the price of properties in Malaysia . While we are happy to see foreign capital help grow our economy, we are still not fully prepared to bear the high inflation caused by huge capital inflow.  

LOSE: Government

The word Chaos is not close to describing the political situation  here in Malaysia today. The shame created from 1MDB debt crisis, the unwieldy political fight and antagonism between leaders, as well as the recent disbandment of the alliance of the opposition parties have all made the outlook of Malaysia’s sovereign rating look unpromising. Well, they may have won the war of words amongst each other but people have already lost faith in them.  

Read our previous article “5 Government Subsidies You Might be Missing”.

DRAW: Trade Balance

Depreciation of  our currency will make the price of our export goods more competitive to foreign buyers. Think about the major export products in Malaysia: electronic products, natural gas, chemical products, petroleum products, palm oil and so on. The government will be happy to see growing numbers in trade surplus (denominated in Ringgit). However, the value of trade surplus when it is converted to USD might not be in favour of us because of the drop of the Ringgit’s value. So, which one should we look for? USD or Ringgit? USD is probably more relevant when comparing among the peers.

Read our previous article “What Falling Oil Prices Means for Malaysians”.

LOSE: Foreign Reserves

Foreign reserves are used to intervene in the foreign exchange market to defend the exchange rate of the local currency. The foreign reserves kept in Bank Negara Malaysia, over the few months being deployed to save the Ringgit through purchasing activity, has depleted from US$ 121 billion in August 2014 (the beginning of the declining trend) to US$ 107 billion in December 2014, and the figure in April 2015 stood at US$97 billion, representing a nearly 20% decrease.  

LOSE: People

Of course, the people are now holding currency with less purchasing power and we have to cut down buying of import goods. On the other side, foreigners are flooding into our country to buy local goods. Unfair? Get used to it.

To conclude

While many believe the Ringgit is already undervalued after succumbing to a strong wave of selling activities, there are still many issues to be addressed: Will the Ringgit be robust enough to withstand another round of selling pressure when a likely rate hike in U.S happen in the near future? Will the commodity prices turn around very soon? How much would Malaysia’s trade surplus improve? Uncertainty awaits but we believe that the market correction will make the Ringgit rebound soon.

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