Hedging Your Worth from Currency Depreciation

Last week Ringgit Malaysia greatly depreciated against US dollar. It was really bad that it seems like 1998 all over again. But, the real effect will only be felt next year when old stocks are depleted and especially if the goods we want to use are imported. This is like a wake up call again for local companies and MNCs in Malaysia. They should depend less and less from imported goods to do their business in Malaysia. I have met a few MNCs who had raised this concern a few years ago. But, I do not know how much they have successfully use more local goods and services.

As an ordinary citizen, this also means next year our personal expenses will greatly increase. To make it worst, government may reduce her expenditure since the oil and gas tax is less than this year. This reduction has its own multiplying effect: first Petronas contractors will reduce their expenditure and second, government contractors, supplier and agencies will have less budget to consume. For the past 3 months, RM has depreciated for 8.61%. Three months ago, 1 USD worth for RM3.203. Today, 1 USD worth for RM3.478. Hence, a RM1,000 in hand may only be worth 91.39% or RM913.9. But, if government and Petronas reduce their expenditure, the actual RM worth may depreciation more than double. Consequently, a RM1,000 in hand may only be worth 82.78% or RM827.8!

How are we going to protect our RM worth? We cannot. It is the work of Bank Negara Malaysia. It is all depend on how good is BNM dancing with the international bankers, and financiers. And it is also depend on how good is our local bankers are. In the last financial turmoil in 1998, there were some traitors among the local bankers. Let us pray the current bankers in Malaysia are more patriotic than before.

As an individual there is still a small step can be taken. We should continue invest in good property and hold on to them. It is still the best method to hedge against the inflation and grow the wealth. The RM depreciation also means 3 months ago, if a person have properties worth for RM3,200,000, the person is a millionaire. Now, a person is only a millionaire if the properties are worth for RM3,478,000. It is not really a big worry for a property investor with that kind of properties worth because every year the properties value will increase between 5% to 10% depending on the location.

There is a good side effect to RM depreciation to property investors in IRDA. You should analyze why so that you will not be left behind.