Tuesday, May 01, 2007

Investing abroad, after 18 months

After one and a half years since my first analysis on investing abroad, RM's exchange rate strengthen.

I was right about the forex movement, and in fact it overshot my expectation of RM3.50 - RM3.60. RM was strengthen to RM3.43 yesterday. It was a right call for NOT to invest abroad then.

What about now?

The trend is that US has no way to reduce its current account deficit. Consumption is a habit that hard to get rid of. It's been many years it depended on its capital account surplus to setoff its current account deficit. As long as people still want US assets, i.e. bonds, stocks, properties, etc. there will be inflow of money. US can still print money and buy cheap things from China and any other places. Balance of payment can still be positive despite unbrindle spending habit of this nation...

Things may be changing now. Euro becomes more important and well accepted by other countries as de facto currency to replace US Dollar. EU economy is at the uptrend. How huge the impact of US mortgage problem will drag down the entire US economy is still in question. Once investors leave US, coupled with current account deficit, US dollar will fall further. In fact, the trend of US dollar seems obvious, it is down.

RM is expected to strengthen further against US dollar.

General consensus is that the world is facing a global assets bubble. From Shanghai, Hangseng, to Footsie 100 and Dow, stock PEs are high. In Malaysia, despite the CNY bull run, you may still able to find some good stock value at reasonable P/E.

My call? Keep your investment in Malaysia. Don't invest abroad for the next 6 months...and certainly not to put your money in the funds that invest abroad.