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With The Ringgit Weakening, Here’s What Singapore Investors Need To Know About Investing In Malaysian Stocks

As an investor, I like to observe when I visit shopping malls. Doing so helps me get a feel of how some retail-related companies and trusts are doing.

As a food lover, I pay special attention to how food & beverage retailers are doing.

But in my recent trips to malls, I have observed an interesting phenomena – people have started hanging out at the currency exchange counter. Many are either Malaysians hunting for the best exchange rates to send their income back to Malaysia or Singaporeans who want to switch some Singapore dollars into the ringgit.

This brings me to Malaysia’s currency: As I write this, one Singapore dollar is worth 3.13 ringgit, which is close to an all-time high! Given the fall in the ringgit, I thought it would be useful to look at the pros and cons of investing in Malaysian stocks from the perspective of a Singapore investor.

The positives:

1. Assets are selling at a discount

Given the depreciation of the ringgit against the Singapore dollar, even if a Malaysia-listed company has the same share price in ringgit terms when compared to a year ago, it will still be selling for a lower price tag today in terms of the Singapore dollar.

Some investors believe that currencies tend to fluctuate in a cyclical manner. For such investors, they may be buying stocks in countries with falling currencies to wait for the currencies to recover before selling them.

2. A larger domestic market and more investment choices

Malaysia’s population is around five times the size of Singapore – that results in the country having a much larger domestic market as compared to Singapore’s.

Singapore’s stock market also has less than 800 listed companies, which is considerably lower than the 1,700-plus listed entities in Malaysia.

By looking at Malaysia, investors can have more choices. For example, Singapore investors who are looking at Singapore-listed banks and telcos would find that there are only six in total (three banks and three telcos).

Malaysia’s stock market contains many banks such as Malayan Banking Berhad (KLSE: 1155.KL), CIMB Group Holdings Bhd (KLSE: 1023.KL), Public Bank Berhad (KLSE: 1295.KL), Hong Leong Bank Bhd (KLSE: 5819.KL), and RHB Capital Bhd (KLSE: 1066.KL).

It also has many telcos, such as Telekom Malaysia Berhad (KLSE: 4863.KL), Axiata Group Berhad (KLSE: 6888.KL), MAXIS BERHAD (KLSE: 6012.KL) and DiGi.Com Bhd (KLSE: 6947.KL).

 The Negatives:

 1. Malaysia is a different market

Despite having similar cultures due to having some shared history, Malaysia and Singapore are still two different markets. As such, Singapore investors may not have a good understanding of various aspects of Malaysia to make an informed investment decision.

Factors such as politics, the economy, social demographics, and more should be considered before investing in Malaysia’s stock market. Failure to do may put Singapore investors in a risky position.

 2. The ringgit may continue to depreciate

There’s no iron law in finance dictating that whatever goes down must come up. So, nobody really knows whether the ringgit’s current depreciation is short-term or long-term in nature.

 With the ringgit trading at close to an all-time low in relation to the Singapore dollar, Singapore investors may be tempted to buy stocks in Malaysia.

But investors should always consider both the risks and rewards before making any investing decision.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.