DAR Wong: 3 Things about FOREX to Know Now & Currencies to Consider
Updated: Jun 30
By: Vance Wong
The foreign exchange (FOREX) market has always been volatile over the years in the short-term but more often than not, there will be a long-term trend.
To understand more about the FOREX market, we had a short chat with local stocks guru, experienced market watcher and FOREX expert DAR Wong.
DAR also gave us some valuable advice about the US Dollar, Chinese Yuan, Euro and our Singapore Dollar, along with some currencies to consider going long.
1. SGD to Strengthen following USD's Weakness; SG Bonds Attractive
In DAR's view, the US Dollar has been strengthening against almost all Asian currencies for the past 18 months.
This is mainly due to the reiteration of rate hike policy and also repatriation of Dollar to US economy after seven years of fund flight out after the QE1 (Quantitative Easing) introduction.
In other words, ever since the US stopped their QE programmes and decided to raise rates, investors who drew out money from the US economy came flocking back.
However, as the US Fed expressed their concerns about the global economy and certain weak indicators in the US, they reduced their rate hike expectations for this year.
When that happened, as can be seen in the graph above, the USD started weakening again as investors move their money out.
DAR foresees that this trend of the Singapore Dollar strengthening against the US Dollar to last till at least mid-2017 and the former will continue to rise.
Singapore Dollar will remain strong as an attraction to offshore corporations to be headquartered here with tax incentives while Singapore Bonds will further attract global investors.
2. CNY to Recover over Long-term, Consider listed SOEs
To DAR, China has always been favouring weak Yuan in the past years to take advantage of more global trade volume. However, the massive decline in Chinese equity prices since June 2015 has delivered a serious warning to the Chinese government.
Further weakening of Yuan will deteriorate the whole economy as the currency begins to be more globalised.
DAR Wong thinks that the Chinese government will start to take measures to make sure that the currency does not fall further.
For example, the Chinese government had recently executed a huge buyback, pushing Yuan up a lot higher.
Some of the best options for investors now is to look at a long-term recovery trend of Chinese Yuan and the equity acquisition of some state enterprises listed on Shanghai and Shenzhen Stock Exchanges.
3. Avoid Eurozone & EUR if GDP & Inflation Growth Weakness Persists
The Euro is pushing higher in the recent months partly due to the influx of funds after monetary stimulus and also the result of a weakening Dollar trend.
However, the Eurozone is facing huge debts from almost all the emerging economies.
DAR thinks that the only way to recover from this imminent crisis is to increase Gross Domestic Product (GDP) growth and push consumer spending higher to stimulate core inflation growth.
Otherwise, investors' money will be lost through the negative interest rates while the stocks and economies might not do well too.
Thus, DAR expects more relocations of European companies into Asia in the coming few years.
In a nutshell, optimism about the European economy is waning, especially with the United Kingdom "yelling" for a possible Brexit from the European Union in June 2016.
Currencies to Note & Consider
Chasing FOREX movements on a daily basis might not be feasible and practical for retail investors so DAR advises investors to look at currencies of stronger economies over the long-term.
Some notable currencies are the Singapore Dollar, Australian Dollar and Chinese Yuan, all of which belong to countries with sustainable growth that promises reasonably good yields over the next few years.
On another note, if crude oil price were to recover in the second half of 2016, DAR thinks that investors can consider the Russian Ruble as an exotic portfolio addition with medium-risk gains.
Meanwhile, DAR Wong will be sharing more insights about his macro outlook of the economy and what you can do during this time of uncertainty at our upcoming Shares Investment Conference 1H2016.
Source: Yahoo Finance
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