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