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Fwd: M'sia Stock Sliding... - Asiaweek
By web aNtu
14/6/2000 11:14 am Wed
Subject: Asiaweek: KLCI To 700 Unless Change Occurs
Business: Malaysia's Stock Market Slip-sliding away
By a#sIF SHAMEEN
June 10, 2000
These were supposed to be the best of times for Malaysia's stock market.
Economic recovery is almost complete, corporate earnings are growing,
the political arena is calm after Prime Minister Mahathir Mohamad and
his latest handpicked deputy, Abdullah Badawi, were elected unopposed to
the top posts in the ruling party. And yes, those much despised capital
controls have been relaxed -- so much so that they seem to be present in
name only, just to give face to leaders who have vowed not to lift
capital controls until the world financial architecture is drastically
reformed. Moreover, Malaysia is finally back in the benchmark MSCI
indices -- which most global fund managers use to track funds. In
February, when Malaysian stocks were rallying strongly, equity
strategists and fund managers in Asia were forecasting the Kuala Lumpur
Composite Index or KLCI to touch 1,100 by June and possibly go to 1,200.
But on Thursday, the KLCI closed at 842 -- down nearly 15% from its
So why are Malaysian stocks slip-sliding? In a word, because the world
has changed. Indeed, foreign fund managers who were supposed to be
buying Malaysian stocks in the lead-up to and the aftermath of the MSCI
reinstatement have been big net sellers of Malaysian equities. Fund
managers in Singapore and Hong Kong whom I have been talking to in
recent weeks tell me attempts by government ministers to talk up the
market have failed because as one of them put it, "there is really
nothing exciting about Malaysia."
The Malaysian government is blaming foreigners jealous of Malaysia's
recovery of spreading vicious lies about the relationship between
Mahathir and chief financial and political adviser Daim Zainuddin. The
two men say the relationship has never been better. "I advise, he
decides," Daim said last week of his "real relationship" with Mahathir.
But unfortunately those jealous foreigners and jittery local investors
haven't been listening -- just been dumping shares.
In an effort to perk up the market, analysts in Kuala Lumpur tell me
that the government may be considering several moves. Finance Minister
Daim wants to hold down interest rates, possibly even cut them -- one
last time -- to add liquidity. (Inflation be damned!) Malaysian stocks
were hammered in early May when the new governor of the central bank Dr.
Zeti Akhtar Aziz hinted that rates might be headed up later this year.
Daim has put that notion to rest: he wants rates down and the stock
market up. "Our fundamentals are so good, the market should shoot up,"
he said last week. Daim is also considering removing the remaining part
of the 10% exit tax currently levied on foreign investors. But Malaysia
won't re-peg its currency for a long time yet. A few months ago, the
ringgit was looking 12% to 15% undervalued. More recently as some of
Asian currencies have weakened, currency analysts say the ringgit is now
close to its fair value. If it is undervalued at all the under-valuation
is no more than 5% they say. That's no reason to re-peg.
One of the arguments for buying Malaysian shares two months ago was that
you could sell them next year and reap a 15% forex gain after the
re-pegging. Now there is no re-pegging likely, there is a 10% exit tax
and Malaysian companies are just plain unattractive. Han Ong, regional
strategist for Salomon Smith Barney in Hong Kong, says Malaysia had been
regarded as a defensive play due to its currency controls and closed
current account during the recent global equity meltdown. As rate
worries in the U.S. and Europe ease, the attraction of Malaysia has
disappeared. Malaysia, he says, now looks like an expensive market.
There are other cheaper, more attractive investment locations in Asia.
Moreover, foreign fund managers are again complaining about Malaysia's
lack of transparency, lack of corporate governance. In their defense,
Malaysian officials point to the plethora of new legislation pa#sed in
recent years. But the perception is that even though Malaysia may have
good legislation in place, enforcement of such laws leaves a lot to be
desired. Big fish are allowed to go scot free, while only some minor
players are reined in. There is also the perception that the government
is obsessed with pushing up the stock market. Moreover, Malaysia is way
behind the rest of the region in corporate restructuring and has kept
its door closed to foreign participation in almost everything. And, in
spite of Dr. Mahathir's grand Muli-Media Corridor idea, the country is
also lagging behind much of developed Asia in technology, Internet
development, e-commerce etc.
Most of the fund managers I have spoken to in recent weeks say they see Malaysia's market trading sideways in the coming months and possibly downwards towards the end of the year. Some are even predicting a further plunge from current levels, perhaps 15% to just 700 for the benchmark KLCI. New liquidity isn't going to flood in until the world starts to believe Malaysia is really changing its ways. --oOo--