Thursday, December 17, 2015

Rising Interest Rate and A Stronger USD $

On 16 Dec, Fed increases the interest rate in USA. 

In this modern world, this increment in interest rate will eventually cause the Singapore Interest rate to increase as well. There is a whole lot of information on the net explaining this link

This rise in interest rate will also result in a strong USD dollar in future.

So how will this affect the companies in Singapore?

Higher Interest Rates:

1. Those companies that uses leverage to grow will be in for a tough time. Their debt will balloon and they will need to pay higher finance cost.

2. Companies with debts on fixed interest rate will not be affected as much.

3. Companies with huge cashload will gain more interest earning.

4. Companies earning rental from properties that are mortgaged to banks, may have huge opportunity costs. If their actual rental yield is not higher than the yield that can be earned from the safer investment, such as treasury bonds, these companies will lose out.

Higher USD$:

1. If a company's item is sold in USD$, and if the financial reports is in SGD$, it will earn a gain in foreign exchange.

2. On the other hand, if a company's item sold or revenue earned in SGD$, but its financial reports are in USD$, it will report a lose in foreign exchange.

3. Note that many of the Singapore firms sell their items globally or in many countries, but only those that sells their products in USA will tend to gain from a higher USD$ (And if they report in SGD$).

Basically as you can see, many companies will be affected by this interest rate rise and it may be a good thing for them too.

To assist you to find good companies, I have come up with the Triple S Scorecard.

If you are interested in my Triple S Scorecard, contact me through my blog or message me on my T.U.B Investing Facebook Page.

Oh and we will have a online course in the works... contact us for more details if you are interested.

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