Investors are famous for their herding behaviors. When the market is up, people go to chase risky assets hoping it will go up forever; When the market drops, everybody is panic as if there is no tomorrow.
The news only tells us what has happened in the past, but people always associate these events with what would happen in the future.
I notice that there are a lot of talks about the strengthening of Singapore Dollars recently. While this trend was there for years, it seems to be noticed by the crowds only this year.
As a result, many fund houses start to launch Singapore dollar hedged class funds, many investors abandon asset classes dominated by oversea currencies, especially the US dollar.
Even insurance companies start to launch Singapore Dollar Universal Life Insurance Policy, which used to be dominated in US dollars.
I am not here to tell you whether the Singapore Dollar will continue to strengthen. However, investors must understand Singapore manages the value of the SGD against a basket of currencies that belong to its major trading partners. A strong SGD helps average Singaporeans to combat inflation and rising costs from overseas, but it does hurt Singapore’s economy itself.
Most countries do not like their currencies to appreciate too much. The inefficiency of the Euro currency is to blame for one of the reasons causing the current Euro Debt Crisis.
While Singapore debt maintains its AAA rating and seen as a safe haven for foreign investors, it does come with costs.
If you pay attention to recent news headlines.
- Aug 31 – Switzerland’s Government Pledges $1.1 Billion to Counter Franc’s Strength
- Sep 5 – Japan Finance Minister Wants G-7 Consensus on Yen
Countries with appreciating currencies are starting to get worried. So don’t always look at the rear mirror when you are driving, look forward. As I always tell my client, stay vigilant, and know why.