Thursday, January 12, 2017

Bank Negara May Have Switched On A Bull Run

Post Published: 5 Dec 2016
Update: When I wrote the post, the majority canned my piece. But this is not a "I told you so" thing. It is so easy to be a critic, let's see how many would be willing to call me and say they were wrong. I bet you very few. When you post an opinion, the internet is a ghastly thing - it allows for unfettered brickbats that has little or no justification or arguments except "I don't think that's true". Is this all ego and pride? Do we all want "acknowledgement" and "praise"? Having a blog for 10 years, I have seen enough. I am also OK when people disagree but at least show some decency and point out why when you disagree. I don't need to be right all the time but at least I dare to say it and put it out there. The world is not all bar room talk... talk cock and thats it, nobody remembers. Make it count, people.

p/s the bull run has started on the local bourse a few days back...

The brave new rules in a brave new world by Bank Negara have set many tongues a-wagging. The media has been having field day slamming the "likely causes" of a weakening ringgit. Let's not get into that for now - we all know whats bringing it down. Let's address the consequences, the aftermath ... for now.

A weak ringgit is not all bad, unless you are travelling or importing stuff. Just travel domestic, and I don't have much sympathy for traders, I mean, they do not really add value, they just import and distribute at a higher price. If they cannot pass the price increase onwards, then biz will be affected, so let it be.

The fact that from now on companies have to convert 75% into ringgit of their proceeds IS A VERY MAJOR THING. I suspect the majority of listed companies with foreign proceeds have been largely keeping them in foreign currency for the last 12-18 months.

Let's be honest here, the ringgit is suffering largely due to the "confidence" issue, if our own major exporters keep keeping their foreign currency proceeds and not convert to ringgit, it can only exacerbate the situation. Its like your family has a crisis and all your members are deserting the clan. 

Then there are the exporters who are appealing for that figure to be 50% instead of 75% in order to keep buying "raw materials and goods". That very appeal shows that they have been keeping much more than 75% for I don't know how long - what about the "supernormal gains" these exporters have been reaping from "translation gains" for the past 12-18 months ... somehow just vanished in thin air!!??

Now, they cannot do it. I think for at least 1/3 of the listed firms that have been profitable, being forced to convert to ringgit will actually realise a lot of gains. Yes, these gains are one-off but still gains. Fr profitable exporters, they'd be profitable already at 3.5 to the dollar ... give them 4.0 or 4.4 ... they are laughing silently.

So, yes, Bank Negara has fast forwarded the next bull run, which I anticipate will NEED a few ingredients:

1) better oil prices (done, with the recent OPEC deal)

2) China led investments - construction, infra

3) strengthening ringgit from lows - done with BN's latest move

4) the speculation over upcoming elections

You will be getting very good results from most affected listed companies for their next 2 quarters - which will be further catalyst to the run.

So, you heard it here first!


Unknown said...

Dear Dali, agreed with many of your points. I think many people are aware of the fact that many of these companies have really been keeping their proceeds in USD. It's just that no action has been taken to address this before. Kudos to BNM for this move. Hopefully, this confidence issue will improve soon.

Unknown said...

Hi Dali,
First, I want to thank you for your many postings and I have found your sharings both informative and insightful. Second, I appreciate your time and efforts in preparing these articles as we are getting them free ( free to us but time costly to you).
Do not let the armchair critics *( and they will always be there) deter you from the pleasure and the motivation to continue your writings. Once again. thank you and with sincere appreciation ( and I have friends too who echo similar sentiments ).

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