Currency movements and stock market

Question: What is the impact of the currency movements on the stock market?

This simple article is of interest to those investing in overseas stock markets.


24-10.08
http://biz.thestar.com.my/business/exchange.asp

Units of Malaysian ringgit per unit of foreign currency:
1 US DOLLAR = 3.6070
1 AUSTRALIAN DOLLAR = 2.4250
1 BRUNEI DOLLAR = 2.4040
1 CANADIAN DOLLAR = 2.8860
1 EURO = 4.6510
1 NEW ZEALAND DOLLAR = 2.1580
1 PAPUA N GUINEA KINA =1.4810
1 SINGAPORE DOLLAR = 2.4035
1 STERLING POUND = 5.8310


A possible impact could be that when the local currency is on the rise, foreign investors will want to sell their shares to realise their gains (shares realise value and exchange rate profit).

Similarly, when the local currency is falling, foreign investors may have the tendency to buy local shares since the cost is relatively cheap, provided the stock market is still bullish.

Scenario 1

MR rises ---> means that foreign investors will
---> sell shares,
---> change back into their own currency for capital gains

Scenario 2

MR falls ---> means that foreign investors will
---> retain local currency
---> buy Malaysian shares as the latter are relatively cheap

Ref: Making Mistakes in the Stock Market by Wong Yee