Thursday, June 02, 2005

Capital is rushing into Malaysia ..

KLCI was on a gradual rise during the start of 2005 to a seven year high until recently it dropped to a record low. Analyst say is due to investor selling based on marginal facilities, meaning they are selling because it is thought to be at the highest rates now. It was at those time which we hear people talking about the Ringgit being unpeg from the USD. These strong words are taken seriously by investor all over, spread of month behave in the speed of lighting, we soon witnessed movement of foreign funds into the market especially towards the blue chips. Sadly, no one even care that the word “high possibility” is missing from the syntax.

Driver could be due to the fact that investor are seeing a negative trend coming when government decided not to remove the Ringgit peg against dollar.

So, market sentiment is as real as you would assume. Due to the fact that nobody is able to have a overall picture of what is happening, scare rumors and news would spawn wonderful effects when no one has the time to justify thoroughly reality-potential of informations.

According to analyst:
1.When the Ringgit is unpeg, real estate's prices will drop because the Ringgit is now stronger compare to other currencies. Recently, high-end housing in K.L up 20%.
2.The case for Peg are:
  • Since Malaysia are exports of oil and gas, which is priced in USD it will suffer revenue lost when it revalues the ringgit. Mean less sales because of higher cost. (Japanese Yen and other currency are higher against the USD now)
  • Malaysia is also competing with China for foreign direct investment. Thus, if the ringgit is stronger, less investment coming in.

Some analyst feels that the reluctant of government to withdraw the peg is holding back the economy as it gives rise to inflation for imported goods and slowing down imports activities.

During 1998, Mahathir capital control is aiming at preventing foreign investor from cashing out. Little money(any currencies) can be transported from Malaysia at one go. The good thing was that it kept the Ringgit supply low and maintained its value at that time.

Now it is the opposite as everyone is waiting to cash out after the peg is removed. Thus if there is no specific deadline given for unpeg, the possibility of cash out is unknown.

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