MQTrader Education Series
MQ Trader - Why trade in a stock market that has strong currency?
MQTrader Jesse
Publish date: Fri, 06 Aug 2021, 06:34 PM
Why trade in a stock market that has strong currency?
Currency fluctuations are a natural outcome of floating exchange rates. There are many factors influencing exchange rates, such as a country's economic performance, the outlook for inflation, interest rate differentials, capital flows and so on. A currency's exchange rate is a key indicator reflecting the strength or weakness of the underlying economy.
The Singapore dollar (SGD) is one of the best-performing currencies in the world. With a robust and growing financial center and stable house prices, Singapore became an attractive destination for offshore investors. The Singapore dollar is the twelfth most traded currency in the world, and the third most in Asia, behind the Japanese yen (JPY) and the renmimbi.
Chart 1: SGD to USD Chart
Chart 2: MYR to USD Chart
According to the chart, we can observe that the Singapore Dollar is more stable than Malaysia Ringgit as the range of Singapore Dollar is between 0.686 USD to 0.833 USD, a percentage of 21.43%. For Malaysia Ringgit the range is between 0.222 USD to 0.339 USD, percentage is 52.70%.
Why does the Singapore dollar stand as a strong currency?
1. Strong stability of financial system attract foreign investment
Singapore has a stable financial system due to prudent financial policies and good governance. Other than that, Singapore also provides low tax rates and business-friendly policies to attract entrepreneurs to operate their business in Singapore.Therefore, Singapore's attractive tax system can boost economic growth and increase the confidence of investors towards the country's performance. This will bring positive impacts to their currency directly when more foreign investors are willing to pump in money to Singapore.
2. Excellent credit profile
According to the report released by export finance Australia, Singapore has very good credit around the world. World top crediting agencies had given the highest possible sovereign credit ratings to Singapore. For example, Moodys, Fitch and S&P had given AAA scores to SIngapore. In addition, Singapore is ranked second out of 190 economies on the World Banks. All of these good profiles provide Singapore with a lower cost to have financing activities. As a result, the country has a higher leverage level to boost its economic recovery from most of the crisis easier than its peers.
3. Steady and gradual appreciation of Singapore dollar
The robustness of the Singapore dollar is strengthened by the country’s sound fiscal policy. The Centre Bank of Singapore, Monetary Authority of Singapore (MAS), aims to achieve “modest and gradual appreciation”, so that the Singapore dollar stays in line with those of its international trading partners. This approach of the MAS allows Singapore to take advantage of cheaper imports of raw materials, but also stimulate the exports from Singapore to other regional markets. MAS had maintained the CPI rate between 98 to 100 from 2014 to 2020, this also shows that from 2014 to 2020 Singapore did not experience any inflation in their country. As of 2020, the MAS owns over US$ 270 billion in assets. Therefore, the Singapore dollar is considered one of the strongest and most stable currencies in the world.
The effect of currency rate on investment
Movements in currencies can have a major impact on the returns from foreign investments. Investing in shares that are denominated in an appreciating currency can boost total returns. On the flip side, investing in shares denominated in a depreciating currency can reduce profits.
Here is an example to show how a currency's stability affects an investor's profit & loss. An investor from country B invested in local and foreign markets (country A). His Initial capital for both investments are 10,000 Currency B. After a year this investor gained the same profit of 30% for both investments. However, the value of Currency B had depreciated nearly 20% at the same time. Through the result, the capital invested in Country A became 15,599.70 Currency B but the capital invested in Country B became 400 Currency B. Although this investor had the same percentage of capital gain from both investments but this investor had only gained 4% of profit on the investment in Country B after taking account of the depreciation of Currency B into the cost of investment.
Based on the example above, it clearly shows the importance of a strong and stable currency in generating remarkable high returns for your investment. You are actually making two investment decisions, the performance of the company and the currency itself, whenever you buy shares of a foreign stock. The ideal result will be the stock price goes up while you get an extra benefit from a strengthening of the currency.
Want to venture into a market that has global exposure and diversify your portfolio?
Open trading account now with MQ Trader to start trading in SGX!
Community Feedback
We encourage traders to try out and evaluate the MQ Trader system and provide us feedback on the features you like to see in the system. We have received many positive feedbacks so far, and we are currently compiling and reviewing them for possible inclusion into the next release of the system.
We would like to develop this system based on community feedback to cater for community needs. Thanks to all those who have provided valuable feedback to us. Keep those feedbacks coming in!
Disclaimer
This article does not represent a BUY or SELL recommendation on the stock covered. Traders and Investors are encouraged to do their own analysis on stocks instead of blindly following any Trading calls raised by various parties in the Internet. We may or may not hold position in the stock covered, or initiate new position in the stock within the next 7 days.
Join Us Now!
MQ Trader stock analysis system uses Artificial Intelligence (AI), various technical indicators and quantitative data to generate accurate trading signals without the interference of human's emotions and bias against any particular stock. It comprises trading strategies which are very popular among fund managers for analysing stocks.
MQ Trader stock analysis system is SPONSORED for MQ Trader members. To use this amazing tool, you can sign up via MQ Trader Sign Up!
Sign up for MQ Trader Affiliate now
We created the MQ Trader Affiliate Program so you can get attractive rewards for helping us spread the word. By becoming a MQ Trader affiliate, you're joining one of the best affiliate programs that has unlimited earnings potential. You will receive the necessary tools to unleash your potentials to recruit more clients and thus extract maximum value from your affiliate marketing efforts.
MQ Trader Affiliate Program is free for everyone. To enjoy the attractive rewards, you can sign up via MQ Trader Affiliate Sign Up.
Reach Us Now!
Find us on i3Messenger now!
More articles on MQTrader Education Series
Is there a safe haven to invest in a recessionary environment?
Created by MQTrader Jesse | Apr 13, 2023
MQ Trader - How to validate buy signals by using MQ Live Backtesting? [ECOWLD]
Created by MQTrader Jesse | Nov 01, 2019
Discussions
Be the first to like this. Showing 0 of 0 comments
Post a Comment
Featured Posts
New Update. Discover investment communities that resonate with your ideas
Apps
Top Articles
1
https://dividendguy67.blogspot.com
2
3
4
6
Good Articles to Share
7
Good Articles to Share
Sydney house fire kills three children, police suspect homicide
8
Good Articles to Share
#
Stock
Score
Daily Stocks
Stock Name
Last
Change
Volume
Stock Name
Last
Change
Volume
Stock Name
Last
Change
Volume
MQ Trading Signals
Stock
Time
Signal
Duration
No trading signals available.
Stock
Time
Signal
Duration
No trading signals available.
Featured Advertisers / Partners
Ride The Bull Short The Bear
CS Tan
4.9 / 5.0
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
