Is S$ a safe haven currency?

[sg_investor]

Just now a news on bt made me think whether s$ is safe haven currency?
Singapore dollar rallied on the fourth day on safe haven appeal.

 

[Mr. Wood]

is not sgd strong. is usd weaken.

 

[havetheveryfun]

is not sgd strong. is usd weaken.

ya lots of ppl are dumping their money into crypto.. btc just up $300 usd in the past 2 days again

 

[Perisher]

thread moved. not SSI topics.

 

[w1rbelw1nd]

Not in my opinion. Imo safe haven currencies is based on an economy that is strong and relatively insulated from external markets influence, with strong fx reserves in central bank and low levels of foreign debts.

Singapore's sgd debts are mainly CPF and residents housing loans, so it's relatively safe, and we have relatively large FX reserve in central bank. But to say that our economy is strong and insulated from external markets, I think it is a stretch. My expectation is growth will be lower and we will be increasingly reliant on external markets... So things will go south slowly.

 

[Perisher]

Currently vested in USD and HKD stocks so having a sum of foreign currency.
Like wind, I think how strong a currency is, depends on it's economy. Instead of cracking my head over what the future will be, I choose to push my $$ into 2 currency which I felt confident in.

 

[NewInvestor]

Currently vested in USD and HKD stocks so having a sum of foreign currency.
Like wind, I think how strong a currency is, depends on it's economy. Instead of cracking my head over what the future will be, I choose to push my $$ into 2 currency which I felt confident in.

Isn't HKD pegged to USD? If so, you are actually into 1 currency. I am just saying...

 

[BBCWatcher]

Isn't HKD pegged to USD?

Pegged currencies can be unpegged at any time. And sometimes those are interesting bets. Ask George Soros.

....But, one again, I feel compelled to counter a fallacy. If you have purchased stocks using U.S. dollars, you are not holding U.S. dollars. You are holding shares of stocks, and those companies can do business in any currencies. For example, if you buy shares of McDonalds on the New York Stock Exchange, you're buying a company that does two thirds of its business in non-U.S. dollar countries, spending and receiving currencies other than U.S. dollars. The currency zone where the stock is traded, and the currency you use to buy the stock doesn't matter if your aim is to hold that currency, or strong correlates with that currency. You own a stock (a fraction of a company), not a currency.

You can purchase McDonalds stock using South African rand if you want. (You simply convert them to whatever currency the stock exchange wants, just before you buy the stock.) And you can calculate the share price of McDonalds at any moments in time in Japanese yen. Any convertible currency works for these purposes. But that doesn't mean you're holding rand or yen either. These are just momentary ways of valuing something else, McDonalds stock, that isn't any currency itself.

As another way to think of this, let's suppose you grow wheat. You use all your wheat to buy rice. Does this mean you're holding wheat, because that's what you used to buy the rice? No! You're holding rice! You traded all your wheat, at a particular moment in time, for some quantity of rice. Now, it just so happens that rice is an imperfect substitute for wheat, so the spot price of rice might be correlated to wheat's price to some degree, moving together to some extent. But you don't own wheat.

The only way to hold U.S. dollars is to hold U.S. dollars, and the only way to hold Hong Kong dollars is to hold Hong Kong dollars. You're not holding the currencies if you merely used those currencies to buy something else. OK, yes, you can trade U.S. dollars for U.S. T-Bills, which are extremely cash-like (short term U.S. government bonds). Most people would consider holding U.S. T-Bills to be "holding U.S. dollars" -- that's "close enough." But shares of stock, no.

 

[revhappy]

Hi BBC watcher, what you are saying is generally true, but there is an underlying currency impact as well. For example, UK stocks that are export oriented rose after the Brexit related sterling crash. However stocks completely geared towards the domestic economy or even worse companies that had high imports must have crashed, in Non GBP terms. So most of the time you are taking an underlying currency exposure, unless we are talking about export oriented stocks.

Sent from Xiaomi REDMI NOTE 4 using GAGT

 

[BBCWatcher]

Hi BBC watcher, what you are saying is generally true, but there is an underlying currency impact as well.

Well sure! I never said otherwise. But if you're buying shares of McDonalds there are lots of factors that can impact their business and their stock performance, including the prices of potatoes and beef, a new report from the French health ministry, supply chain problems in China, rupee demonitization in India, an activist shareholder (e.g. Carl Icahn) who wants the company to do something different, launching a takeover bid for Jolibee.... The list is practically endless.

By the way, Hong Kong is tiny. I just looked at the top 10 stocks traded in Hong Kong in terms of market capitalization, and only a couple of them (#9 and #10) have substantial business in Hong Kong that would be materially affected by unique swings in the Hong Kong dollar. There are some of them (e.g. AIA, Prudential) that would be approximately equally affected by unique swings in the Singapore dollar, since they probably do approximately as much business in Singapore as they do in Hong Kong. And they have larger market caps.

If somebody wants to bet for or against the Hong Kong dollar, this isn't the obvious way to do it. It's not the way George Soros would do it.

 

[TribleBoob]

it is,
but not as safe as yen

 

[Dyhalt]

Traditionally investors think of USD, JPY and swiss franc as safe haven currency because of their economic strength and ability to survive crisis.

When all currency are not safe, then its time to think of gold and silver though its a highly unlikely event.

 

[888888888888]

-JPY
-CHF

And EUR increasingly used as funding currency post 2012. if you have looked at USDJPY e past week, you'll be surprised at whether its the USD or JPY.

 

[revhappy]

SGD is bouncing on a very volatile way last few days, between 1.35 and 1.36

Sent from Xiaomi REDMI NOTE 4 using GAGT

 

[revhappy]

Actually haven or not is relative. These days some emerging market currencies are doing really well, less volatile than developed market currencies.

Sent from Xiaomi REDMI NOTE 4 using GAGT

 

[BBCWatcher]

When all currency are not safe, then its time to think of gold and silver though its a highly unlikely event.

The "prepper" crowd prefers buckets of freeze dried food stashed in multiple locations (including some in a quick getaway pack), and guns to protect it, over precious metals, and they're probably not wrong. Precious metals don't work as well (as cost effectively) as a basket of high quality sovereign instruments when there's a financial panic, and they don't supply humans with their essential calories and nutrients. If you rely on a custodian for your gold, who's to say that your gold will be any more retrievable than anything else the custodian might hold? And if you're stuffing gold under your mattress, who's to stay that somebody won't take it? (Hence the prepper crowd's views on guns.)

Physical gold (and other physical materials and goods) used to have a role as a hedge against inflation, but governments and modern financial markets long ago figured out how to hedge against inflation. Any reasonably well diversified basket of real assets is a hedge against inflation, including ordinary stocks (equities), which the historical data show are better hedges against inflation than precious metals.

So what's the theory for why gold, specifically, is something to hold beyond a bit of sparkly jewelry if that's your thing?

 

[hindsight]

Pegged currencies can be unpegged at any time. And sometimes those are interesting bets. Ask George Soros.

....But, one again, I feel compelled to counter a fallacy. If you have purchased stocks using U.S. dollars, you are not holding U.S. dollars. You are holding shares of stocks, and those companies can do business in any currencies. For example, if you buy shares of McDonalds on the New York Stock Exchange, you're buying a company that does two thirds of its business in non-U.S. dollar countries, spending and receiving currencies other than U.S. dollars. The currency zone where the stock is traded, and the currency you use to buy the stock doesn't matter if your aim is to hold that currency, or strong correlates with that currency. You own a stock (a fraction of a company), not a currency.

You can purchase McDonalds stock using South African rand if you want. (You simply convert them to whatever currency the stock exchange wants, just before you buy the stock.) And you can calculate the share price of McDonalds at any moments in time in Japanese yen. Any convertible currency works for these purposes. But that doesn't mean you're holding rand or yen either. These are just momentary ways of valuing something else, McDonalds stock, that isn't any currency itself.

As another way to think of this, let's suppose you grow wheat. You use all your wheat to buy rice. Does this mean you're holding wheat, because that's what you used to buy the rice? No! You're holding rice! You traded all your wheat, at a particular moment in time, for some quantity of rice. Now, it just so happens that rice is an imperfect substitute for wheat, so the spot price of rice might be correlated to wheat's price to some degree, moving together to some extent. But you don't own wheat.

The only way to hold U.S. dollars is to hold U.S. dollars, and the only way to hold Hong Kong dollars is to hold Hong Kong dollars. You're not holding the currencies if you merely used those currencies to buy something else. OK, yes, you can trade U.S. dollars for U.S. T-Bills, which are extremely cash-like (short term U.S. government bonds). Most people would consider holding U.S. T-Bills to be "holding U.S. dollars" -- that's "close enough." But shares of stock, no.

Its not a fallacy. You can't assume that all companies are like Macdonald's (MNC with substantial revenues from foreign countries), many US companies (or HK companies if we want to talk about HKD) do not have substantial overseas operations, they don't get a bump in earnings when the USD/HKD tanks.

The strength/stability of a currency matters when it comes to investing, its not a given that the stock will rise when the currency its denominated in tanks. The Asian financial crisis is a very good example of what can happen when foreign investors flee capital markets en masse.

On safe havens... well I think the closest thing to a safe haven currency now is the Japanese yen, but in my view no currency is really safe these days, not when central banks are all trying to debase their currencies.

The sgd is pretty resilient because Singapore is fiscally sound, our trade position is nearly always positive and we have very large reserves, but I don't think its a safe haven per se. Afterall its a currency that runs on a managed float i.e MAS tends to debase the sgd when our major trading partners don't do well.

 

[BBCWatcher]

You can't assume that all companies are like Macdonald's (MNC with substantial revenues from foreign countries), many US companies (or HK companies if we want to talk about HKD) do not have substantial overseas operations, they don't get a bump in earnings when the USD/HKD tanks....

You cannot assume they don't. And I looked! The Hong Kong domestic economy is small, and in terms of market capitalization the top 10 stocks listed in Hong Kong have relatively little business in Hong Kong. They just happen to be listed there.

The U.S. is the world's largest economy, and practically everything on the planet is correlated with the U.S. economy at least to some degree. The Global Financial Crisis recently, vividly proved that. Even so, if you look at the S&P 500, which represents the lion's share of the U.S. stock market capitalization, barely over half the revenue those 500 companies generate comes from within the United States.

Look, this isn't at all a controversial point I'm making, at least not among people who've studied this issue even a little. If you want to bet on a currency, shares of company stocks are not the way to do it. At best it's a very inefficient, highly diluted way to make those sorts of bets, and that's if you're very, very selective about which individual stocks you trade. It's not good enough to say "Oh, it's listed in Hong Kong, so it must be highly correlated with Hong Kong dollars." No, it doesn't work that way.

 

[BBCWatcher]

If you want to bet on a currency, but feel uncomfortable for whatever reasons using the currency futures/options markets to make the most direct bets, then try short-term bonds denominated in that currency (government, corporate). That works pretty well.

You might think that REITs investing solely in properties within your chosen currency zone would be highly correlated with the currency, and the same with real estate-related companies such as hoteliers. They are somewhat correlated, but it might be a negative correlation! That just happened recently in the U.S. during the Global Financial Crisis. The U.S. dollar rose, and real estate collapsed. Surprise!

 

[hindsight]

You cannot assume they don't. And I looked! The Hong Kong domestic economy is small, and in terms of market capitalization the top 10 stocks listed in Hong Kong have relatively little business in Hong Kong. They just happen to be listed there.

I'm not assuming anything. All I'm saying is that many companies have negligible global footprint. I don't know which "top 10" HK companies you are talking about but there are several companies on the HSI with most of their businesses in HK i.e real estate developers, HKex, etc. And mind you these are large caps, if we look at the stock market as a whole, there are many many more mid/small cap companies that derive most of their revenues from the domestic market.

The U.S. is the world's largest economy, and practically everything on the planet is correlated with the U.S. economy at least to some degree. The Global Financial Crisis recently, vividly proved that. Even so, if you look at the S&P 500, which represents the lion's share of the U.S. stock market capitalization, barely over half the revenue those 500 companies generate comes from within the United States.

And even within the S&P500 there are companies with negligible foreign revenues. S&P500 =/= the global stock market or even the US stock market, there are many high growth companies in the Russell that investors might be interested in, and most of these companies get their revenues domestically.

Look, this isn't at all a controversial point I'm making, at least not among people who've studied this issue even a little. If you want to bet on a currency, shares of company stocks are not the way to do it. At best it's a very inefficient, highly diluted way to make those sorts of bets, and that's if you're very, very selective about which individual stocks you trade.

Erm no I'm not planning on making a bet on anything and I don't think its a good idea to bet on currencies anyway. My point is simple. You assume that the stability of a currency doesn't matter when it comes to investing in foreign stocks, I proved you wrong with examples of public listed companies (even large caps) that serve mostly the domestic market with no foreign revenues.

It's not good enough to say "Oh, it's listed in Hong Kong, so it must be highly correlated with Hong Kong dollars." No, it doesn't work that way.

Replace "must" with "could" and you "should" be able to see my (and revhappy's) point.