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NYTimes - Investors scared of Y2k N M/shit By web aNtu 6/12/1999 7:24 pm Mon

December 4, 1999 Mahathirīs Re-Election Does Not Impress Foreign Fund Managers By WAYNE ARNOLD KUALA LUMPUR, Malaysia -- With all due respect to Frank Sinatra, investors here have had just about enough of "My Way." Prime Minister Mahathir Mohamad adopted Sinatra's swan song as the anthem for his election campaign last month to remind voters how he had steered Malaysia through Asia's financial crisis while spurning foreign succor and remonstration. The public responded on Monday by giving his ruling National Front a majority and a five-year reprise to his 18-year tenure as prime minister. Behind the election results and the stock market's slump the day after, analysts and investors say, is a growing impatience with Malaysia's failure to take the kind of financial and corporate medicine that the International Monetary Fund has prescribed for Thailand, Indonesia and South Korea. Mahathir appears to have won little gratitude for having spared Malaysia whatever humiliation might have come from inviting foreign a#sistance. "There are a lot of people not entirely happy with him," said Fiona Leong, head of research at the J.M. Sa#soon brokerage firm. Instead, Mahathir's policies and antiforeign rhetoric appear to have alienated the foreign investment-fund managers Malaysia needs to finance its shift from a high-technology manufacturing base to a service economy, as companies relocate production to countries with cheaper labor such as China. Such dissatisfaction may seem out-of-place considering Malaysia's current economic vigor. After slipping into recession in 1998 and imposing controls on currency flows in and out of the country that fixed its exchange rate, Malaysia has returned to growth that economists estimate could exceed 5 percent this year. The sidewalks of downtown Kuala Lumpur have become a battle zone of jack hammers and faux French cafes. Economists say this Malaysian renaissance has less to do with Mahathir's policies than with a cyclical rebound generated by demand for Asian exports from the United States and Europe. "It's just a cyclical upswing," said William Belchere, head of Merrill Lynch's fixed income research in Singapore. The electoral returns themselves provide some insight into the disillusionment with Mahathir. The ruling coalition's share of the votes dropped to roughly 56 percent from more than 65 percent when elections where last held in 1995. Thanks to a redrawing of constituencies in 1996, that was enough to secure more than three-quarters of the seats up for grabs. But Mahathir's own party, the United Malays National Organization, saw more than one-fifth of its seats taken away. Much of this popularity was lost in more conservative Muslim northern states, with a second state falling into the hands of the Islamic Party of Malaysia. Though less-developed, the area is rich in natural resources and investors worry this new opposition state will copy its predecessor and impose Islamic law, curbing its appetite for such lucrative vices as gambling and drinking alcohol. Analysts also worry that the opposition gains could presage broader dissension once Mahathir, who is 73, leaves office. Another potent source of discontent comes from the middle-cla#s communities and industrial enclaves in the state surrounding the capital. There, the National Front's share of votes fell from roughly 75 percent to 55 percent. Foreign investors are also leery, with many still smarting from what they regard as Mahathir's caprice and unfounded accusations that a Jewish-led conspiracy has sought to undermine Malaysia's economy. As part of an effort to repair its economy, Malaysia also outlawed trade in Malaysian shares overseas, a move that overnight shut down a lively market in Singapore and left 172,000 investors with roughly $4 billion in Malaysian shares they couldn't sell. Fund managers say the still-unresolved issue is yet another example of discrimination against foreign shareholders. "If they're serious about reform, and they want to be fair, why do they lock these guys up?" asked J. Mark Mobius, president of the Templeton Emerging Markets Fund. Mobius, who says he has pulled $2 billion out of Malaysia since it imposed capital controls, is spearheading a campaign by fund managers to convince Morgan Stanley Capital International to reconsider its August decision to reinclude Malaysia in its influential model portfolios. Because so many funds use Morgan Stanley's portfolios as a benchmark to measure their own performance, he says, Malaysia's reinclusion would obligate many fund managers to invest there regardless of what Mobius says are considerable political risks. In late October, Morgan Stanley announced that it would delay returning Malaysia to its key indexes from Feb. 29 until May 31 to avoid any potential problems caused to computers by the leap year. "Thank God they listened to our advice," Mobius said.