Market down? This is how you make money!

Date: March 19, 2020
Source: SPB Strategy Department

The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) had recently announced that the Overnight Policy Rate will be adjusted downwards by 25 basis points to 2.5% – The lowest since 2011.  So, what’s the impact we can expect from the adjustment of OPR?

  • Mortgage loans

Banks to adjust their mortgage loan interest lower, up to 0.25%

  • Negative impact on fixed deposit (FD) rates

Savers can expect their FD profit to be lower, up to 0.25%

  • Depreciation of Ringgit Malaysia

With a lower interest rate, foreign funds will start to move to countries with better return. Therefore, the demand for Ringgit Malaysia will decrease, thus depreciation of Ringgit Malaysia

So, how do we ensure the value of our life savings is hedge? At this moment, investor will think of gold. However, gold isn’t the answer during COVID – 19. Let’s refer to the chart below:

We can see that many are rushing for gold during the initial outbreak of COVID – 19. However, when the situation worsened, the demand for gold reduced drastically due to flight for cash.

Next, let’s look at the performance of MYR to USD.

Malaysian Ringgit is now almost reaching its’ 10 years low of 0.2224 USD per RM1.00. I would not be surprised if the MYR performance continues to fall given the performance of crude price and COVID – 19 situations.

Therefore, I would recommend property to safeguard your Ringgit value. Why so?

  • Property prices is more stable, less volatile than commodities and equities

One can expect the price of property to be less volatile if it is strategic

  • Cost of property development is fixed

A developer would never sell their project below certain margin under normal environment. Therefore, price security is given to the property owner.

  • Property prices expect to grow over times

The two main factors are inflation and scarce of land in strategic areas.

In a nutshell, there is no perfect hedging tool for one to safeguard their cash value. However, there is always the better option to protect your capital. At the current moment, it seems that property is the answer! The three main factors for the considerations are: Low interest rate mortgage loans, low price volatility and potential future price appreciation!

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