Tuesday, April 27, 2010

Strong Ringgit, weak will

While I cheer the strengthening Ringgit, I view with some trepidation the true causes of its strengthening.

Is the Ringgit strengthening because of Malaysia's own economic recovery?

Or, is it due to the influx of "hot money" that is directed largely towards :
  • speculating in Bursa Malaysia;
  • speculating in Malaysian properties; and
  • speculating in the rise of the Ringgit itself? (granted that one cannot speculate in the Ringgit in the manner that was done in 1997-1998 - now it's a more tactical "parking" of funds in Ringgit-form than outright trades)
Many of us are aware that stimulus funds injected by governments throughout the world into their respective economies coincided with loose monetary policies that suppressed interest rates. This has created the phenomenon of cheap money.

Cheap money is fodder for the financial elite of many Western countries. Are they using this cheap money to make money in emerging markets like Malaysia?

This is a very likely possibility.

Which means that the Barbarians are not only at the gates of Malaysia, they're already within our fortress and, many Malaysians have been seduced into thinking that the good times are back.

We should all - especially policy-makers - pause to consider the recent phenomenon more carefully lest we fall into the 1992-1997 trap of thinking that our economy is doing so well that genuine investors are flowing back from every God-forsaken crevice into Malaysia for the medium to long term.

It ain't so.

Malaysian policy makers need to be watchful. Malaysian economic players need to be cautious.

This is especially so for those who speculate in Bursa Malaysia and properties.

For, when the "hot money" decides to flow elsewhere, the only good product is the facial tissue for which there will be plentiful demand to wipe away tears of sorrow.

No matter how nimble you are, dancing on a bed of hot charcoal will burn your feet.
pix from here.

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