Cash in a Warzone: A Story from Myanmar - 2025-02-11

I recently had lunch with a colleague from Myanmar, and her stories about her family back home painted a stark picture of life during wartime. Her mother runs a Bak Kwa shop in Yangon, a business struggling to survive amidst the ongoing conflict. The war has triggered a dramatic devaluation of the local currency, as the government frantically prints money to cover its expenses. This constant printing has fueled hyperinflation, sending the price of raw materials soaring. Her mother has been forced to raise her prices, but with Bak Kwa being a non-essential treat, demand has plummeted. It's a classic wartime economic squeeze.

The conversation then turned to her family's house. Initially, her mother considered selling it. Located near the capital, it's in a relatively safer area, and there were plenty of interested buyers. But then came the crucial question: what to do with the cash? With the currency rapidly losing value, the proceeds from the sale would be worth less and less each day. Unless a buyer could pay in foreign currency, holding onto the house seemed like the wiser, albeit still difficult, choice. It's a stark illustration of how governments can inadvertently "rob" their citizens through unchecked money printing, especially during times of war. The value of savings evaporates, and everyday transactions become a gamble.

Beyond the economic turmoil, the conversation highlighted the crucial role of security. Without safety, assets become meaningless. Auntie Par, whose house was bombed. Forced her parents to flee their home, they eventually sought refuge in India. This resonates deeply with Maslow's hierarchy of needs: basic survival and safety must be secured before anything else matters.

Hearing these stories brought home how fortunate we are to live in Singapore. However, it's a reminder that safety and stability shouldn't be taken for granted. These stories from Myanmar underscore the importance of investing wisely, not just in financial instruments, but in stable countries with robust governance. Without that foundation, everything can indeed be reduced to square one.

Investing Abroad: Know Before You Go (or Stay Away!)

I'm a firm believer in "know what you own." That principle extends beyond individual companies to entire countries. Investing in a country I don't understand is a recipe for disaster. It's perfectly fine to miss out on potential gains – there are always other opportunities. But what's not okay is getting stuck in a bad investment with no way out. That's the real danger.

The Exit Strategy: A Must-Have

Before investing a dime in a foreign market, I ask myself: "How will I get my money out if things go south?" If the exit strategy is unclear or complicated, I walk away. Liquidity is paramount. Being able to sell your investment quickly is crucial, especially in volatile markets.

The Importance of Trustworthy Accounting

Another red flag for me is unreliable accounting. If I can't trust the numbers, I can't trust the investment. How can you make informed decisions when the financial statements might be fabricated? It's like navigating in the dark without a map.

Lessons from China: Tax Incentives and Inflated Income

I've learned valuable lessons from observing the Chinese market, particularly from insightful bloggers. One key takeaway is the potential for inflated income in sectors benefiting from tax breaks, like agriculture and IT. When companies don't have to pay taxes, they have a strong incentive to exaggerate their earnings. This can create a distorted picture of their financial health and make it difficult to assess their true value.

Due Diligence is Key Investing in any country requires thorough due diligence. Understand the political and economic landscape. Research the regulatory environment. Scrutinize the accounting standards. If anything seems murky or questionable, it's best to err on the side of caution.

My Approach: Stick to What I Know I prefer to invest in markets I understand. It's not about being narrow-minded; it's about managing risk. There's no shortage of investment opportunities in countries with transparent accounting systems and reliable regulatory frameworks. Why venture into uncharted territory when you can find plenty of promising investments closer to home? In short: Foreign investing can be tempting, but it comes with unique risks. Don't let the allure of potential returns blind you to the dangers of illiquidity and unreliable accounting. Stick to what you know, and always have a clear exit strategy in mind. Your portfolio will thank you for it.