After talking about it for 24 months, the US Federal Reserve (Fed) is finally about to raise interest levels. For any good part of these 2 years, I had not been too concerned about interest rate increases and was pleased to pick up REITs beaten down by interest rate worries.

It was 2 weeks ago that I realised that while interest rate rises were not too worrisome, things do not work in isolation. Here are my activities and thoughts taken in response to interest rate rises and their supplementary results. As mentioned, interest rate rises shouldn’t be too worrisome. My guess is that US interest should not rise to more than 0.75% by the end of the year and 2% by the end of next year.

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By pre-Global Financial Crisis standards, 2% interest is considered very low. Thus, I am not too concerned with the increased interest that stocks and REITs have to pay on their debt obligations. When US interest rate rises US Dollar shall become more attractive and rise as well. In fact, this has already happened. Year Since the middle of last, US Dollar has started to rise against Singapore Dollar, Euro, and Yen. The rise is approximately 7% against SGD and 20% against both EUR and JPY.

Among the regional currencies, SGD is the most powerful usually. Against USD, Malaysian Ringgit (MYR) has fallen by 16% and the Indonesian Rupiah (IDR) has fallen by 11% since a year ago, as shown in the figure below. The effects of the above foreign exchange movements mean that companies that earn revenue in USD shall benefit, while the ones that earn revenue in EUR, JPY, MYR, and IDR are affected. Among the stocks in my portfolio as at the end might, LippoMalls earn its revenue in IDR while its debts are denominated in SGD.

Metro also has retail procedures in Indonesia. Both were sold in early June. For more details on LippoMalls, you can make reference to AN ACCOUNT of 2 Indonesian REITs. The conditioning of SGD against local currencies does mean that it has become more expensive to go to Singapore for holidays, resulting in lower income for hotel business trusts such as CDLHTrust, OUEHT, and FarEastHTrust. There is another stock that is situated in Indonesia, namely First Resources. However, it earns its revenue in USD, so there isn’t much concern.

It can be done to comprehend the impact of foreign exchange motions on companies’ profits by referring to their annual reviews. There is usually a section that discusses the impact to profits and equity if the major currencies that the company is exposed to rise or fall with a certain percentage.

When USD increases, assets that are denominated in USD tend to fall. Such assets include essential oil and platinum. As at end might, I’ve about 8 oil-related stocks in my own portfolio, such as BakerTech, CH Offshore, ChinaAvOil, CSE Global, Keppel Corp, MTQ, Rotary, and PEC. None of them will be sold for 2 reasons. Firstly, oil prices had already fallen by almost half because the middle of this past year! Going forward, it is unlikely that the oil price will fall by a similar extent even if the USD were to rise further.

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