I had an interesting read from John entitled The New Malaysian Economic Dilemma. He offers some really interesting advice. He suggests the following:

1. Buy currency that can withstand future devaluation (e.g. USD)
2. Buy stock in export-oriented companies
3. Avoid large debts payable in USD

As always, there is no right or wrong in economic theory. An expert may forecast an economy’s performance with perfect sense and reasoning but the actual outcome may be in total contrary with the forecast. So what I am doing here is to offer some contrary view from John’s advice.

I do agree with most of John’s writing except for buying stocks in export-oriented companies and partially agree with him on avoiding large debts payable in USD. I will explain why.

I will use the recent Ringgit devaluation again the greenback as my main argument of disagreeing with John’s investing in export-oriented companies. You see, companies that are export-oriented generally will have their shipment invoiced in USD or Euro. Of course, one could argue that the strengthening of USD makes the Malaysian goods and services become cheaper thus more attractive to importers. However, one should also bear in mind that bulk importers will generally engage into supply contracts or hedge against future price fluctuation. This is particularly true for commodity exporters (and Malaysia is a net commodity exporter such as palm oil, rubber and tin). As a result, significant demand hike for exports will not be immediate. On the other hand, the recent fuel and diesel price hike will bring immediate pressure on the operating expense to these companies, especially in area such as transportation, processing and shipping expenses.

My view is, although weaker Ringgit makes these companies look attractive in the long run (and assuming Ringgit can continue to stay low) they will have to bear immediate cost shock in the short run, thus making them less attractive to invest in.

On my partial agreement on John’s advice on avoiding large debt payable in USD, I think this is a no brainer. Sound investors should avoid investing in companies with high gearing and low liquidity, regardless of the payable’s denomination.