Tuesday, 15 September 2015
Cash as an asset allocation. What currency?
Singaporeans have struck the ovarian lottery just by being born in Singapore. No thinking or physical effort required!
Not sure whether its a good or bad thing, but Singaporean investors have one less thing to worry about compared to investors in our neighbouring countries.
We don't have to crack our heads to figure what currencies to put our cash in.
Yes, SGD has weaken against the USD from the low 1.20s plus to the current 1.40s. But you don't hear Singaporeans complaining or worried.
That's because our SGD has strengthened against popular holiday and investment destinations like Japan, Australia, Malaysia, Indonesia, etc.
If you were a Malaysian working in Singapore in the early 70s - when the MYR and SGD were on parity - were you glad you kept most of your cash (retirement savings or opportunity funds) in SGD at our Singapore banks?
Just make a wild guess why the wealthy Indonesians like to come to Singapore to purchase Life insurance policies denominated in either SGD or USD?
Investors from an emerging countries may have lost money with their investments in Singapore properties on a nominal basis, but after currency conversion back to their home currencies, they may still come out on top!
Perhaps that's why Singapore has a thriving private banking sector? The rich in Asia not only have to decide what currencies to put their cash and/or assets in, they also have to decide where to store them.
Now, is it a good thing to have all our cash in a single currency?
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AUD used to pay high int rate and many long term forex trader play the 'carry over' trade
ReplyDeletebut not so profitable now
Jimmy,
DeleteAustralia was also one of the favourite countries for property investors some years back.
That's why there's a time for entry and there's a time for exit.
No free lunch!
Hi SMOL,
ReplyDeleteInstead of cracking our heads on the currency to hold, I think most of us are more concern on getting the best interest rates.
I know nuts about Forex but I have some spare US currency in my warchest.
Derek,
DeleteCash in what currency is just the appetiser.
Once our total assets become meaningful, what currencies to base our total assets in can be just as important as what assets to hold ;)
Singaporean investors can be quite parochial. We had it good in Singapore, so why bother venturing out?
But in a volatile environment, that's where our neighbouring investors have an edge over us - they already had years of hands on practice!
Just like Malaysian investors are more in-tuned to Corporate Governance issues than Singaporean investors ;)
For retail investors which mostly invest in Sg, guess keeping our own currency is a natural hedge per se! The fluctuation of sgd is manageable compared to so many other ctries!
ReplyDeleteFor business owners who have businesses in other countries, then they have more headache on the allocation n can suffer exchange rate risks which are so significant!!!
Imagine u r a Sg company which started hotel business in Aust during AUD peak. Now u r bleeding due to currency.. which is precisely what happened to one of my clients...
Rolf,
DeleteThe price for winning the ovarian lottery is that It sort of makes "diversification" a strange idea here for retail investors - job in Singapore, all assets in Singapore, all denominated in SGD - all eggs in one basket?
Precisely. An Indonesian or Malaysian business person will be more likely to hedge his currency exposure (due to realities in their home countries, 97 AFC lessons, etc) than a Singaporean business person venturing overseas for the first time...
That said, I am quite impressed with some retail investors in our midst. They are into International or Global investing - with exposures to US, European, HK, Thai, and Malaysian stocks, etc.
Not through mutual funds or ETFs, but direct stock investing!
I guess these global retail stocks investors will have a head-start and edge when they venture to overseas property investing later in their careers.
I guess your client's experience in Australia is not unique to first time overseas retail property investors who are now finding out that the so attractive rental yield in % is not looking so enticing now that's its priced in SGD...
Hi SMOL,
ReplyDeleteFX only means two things to me...whether next holiday would be expensive and its impact on the stocks I have or going to have (whether as investments or as trades since I like to cover my losses immediately and if time is right convert my gains back to SGD). Not so much into overseas property investments...been a direct observer...a bit troublesome but managed to get out at the right time with some profit.
Joyce,
DeleteDuring my first year, I too have been changing my SGD to USD and USD back to SGD in my trading account.
Since beginning of last year, I've decided to let my profits and capital remain in USD since most of my trades are long USD expressions anyway.
Nice to have a little tailwind support ;)
Hi SMOL,
ReplyDeleteYou brought up a good point which even some conservative Singapore investor overlook. A Singaporean can have a diversified portfolio of stocks, bonds and properties. He may think he is safe thanks to his diversified investment portfolio. But is he really safe? All his assets are denominated in SGD. Isn't that akin to putting all his eggs in one basket?
hyom hyom,
DeleteThat's where politics and economics are intertwined.
When Abe devalued the yen last year, those savvy wealthy Japanese that switched their liquid assets to US treasuries have benefited, while the common Japanese faced higher prices due to imported inflation...
The rich gets richer; the poor gets poorer.
Must have a land owner mindset even if we are the common man living in HDB estates.
Just call ourselves a nano-land owner!