MI Chief Economist
1. The recent appreciation of MMK have caught many traders and businessmen alike unaware. Many were surprised by the size of the drop and the fact that it run counter to the CBM buying $ in bulk very frequently in the past month. The prices settled were all below 1500 Kyats per $.
2. MI has examined the reasons for this drop with the intention of making a credible forecast for the coming six months of the election year.
3. Many were not expecting the drop (started well before Iran – US issue), yet the technicals indicated otherwise. If one looks at the basic chart of USD vs Kyats, since the time of currency liberalization in 2012, the historical chart movement have been climb-up, plateau, cool off, in that order. And that order repeated every time and we are now heading towards the end of the 6th cycle and seeing the drop at the end of the plateau. And that drop may be ending soon.
4. 31-Days moving average chart (red line) also indicates likewise. The tend is heading downwards slowly, yet it may not be long before this trend reverses. This is especially true as MMK inflation is likely to increase (and result in MMK depreciation) with the production of the new 1000 Kyats notes.
5. If one looks at the 30-Days momentum chart (green line), downward momentum is still there, albeit not as strong compared to the start of Q2 of 2019. The momentum may cross back the zero line soon, but it would be a while before the momentum line cuts the moving average line from below (which would represents a definite $ buying opportunity).
6. On the fundamental side, the economy is going downhill so much that importers are very pessimistic about importing capital goods with no hope of selling back quickly in MM. In one of the top showrooms along University Avenue, lots of luxury cars are piling up. People are trading down their Roll Royces and Mercedes for cash or cheaper cars. Lots of businesses and top businessmen are cash strapped and they are avoiding any spending on luxury or capital goods (all imported) at all costs. MI has interviewed another major car dealer group and for the first time in their ten years or so of operations, they have encountered the first ever experience of selling zero cars (in last month).
7. From FMCG to property to manufacturing, every single sector is down. Consumer spending is down. With 2020 being an election year, every business is expected to be cautious in spending and investments. This represents bad news on the economic front and imports are expected to go down further. As such demand for $ is not as much as per previous years.
8. Hotel industry is not spared either. Inlay hotels occupancy rates hovered around 50% in this very peak season. Boatmen carries half of what they used to carry last year, due to lower tourist arrivals. Bagan has got similar stories. Exporters will also be hit hard, as CMP contracts (in $) agreed upon previously, may no longer be profitable, as the inflows drop due to the $ depreciation.
9. With the threat of war between US and Iran, there is a global movement away from $ into safe heaven ‘gold’ and other hard currencies. This may be contributing to $ drop too.
10. So what do we see and how do we prepare ourselves financially in this election year? First, move some of your MMK into gold. Second, it might be good to take advantage of this current drop and slowly pick up $ over the first half of 2020. Last, for the medium term, it might be worthwhile picking up, distressed properties at rock bottom prices, using bank financing options.
11. Be strong, be safe and take advantage of opportunities in this roller coaster ride of an election year.