The underlying ‘Force’ within Malaysia’s stock market

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By Michael Ang

If you are a Star Wars addict and also a share punter, then it may not be hard to find a link – odd, yes – between the intergalactic bar in the sci-fi adventure and the real-life stock market.

Both are watering holes for people of a fortune-hunter nature.  The celluloid drinking place draws a spectrum of oddball aliens that have – whatever their body shapes or number of eyes – one thing in mind: a lust for bounty and a high threshold for risking all to get it.

The stock market offers convergence for a roll call of offbeat creatures within what the industry calls “retailers”: speculators, petty gamblers, manipulators, and some occasional investor who actually believes in dividends and capital appreciation. The last category is, as the Star Wars opening gambit says, “long time ago and far, far away”.

We live in an age of what has been called “irrational exuberance”, meaning that frothy markets can be powered not by existing reality or fundamentals but by intervention and/or exaggeration.

Japan’s current market rally offers testament to the perception gap between huge public debt, lacklustre economic growth and slow manufacturing activity against a 50 per cent spike in the exchange.

Two decades ago, Malaysia had the mother of all bull runs that set a new bar for gravity-defying limits. The Kuala Lumpur Composite Index powered to gravity-defying limits of above 1,300 points, with an eye on 1,600 points, riding on speculation, greed and liquidity in 1993.

It was a perfect storm of decadence that, when it burst, wiped out huge fortunes and aggregated savings alike.

Mortals were again reminded that the forces of nature – what goes up must come down – applies to every act of defiance as the index was slapped back below 300 points during aftereffects of the “Tom Yam” meltdown few years later.

Over the years, the Malaysian bourse has climbed up to the level of its 1990s peak on resilient growth of the economy, export-led activities, rising domestic consumption and development; and overseas ventures by forward-looking Malaysian corporations have underpinned much of the fundamentals of a rising stock index.

The Malaysia Inc model – based on the pro-business official attitudes and corporate giants such as Japanese zaibatsu and Korean chaebol – has been part of the story.

Whether the template weathers the 13th general election is a question that is the subject of sotto voce discussion within Malaysia’s business community. But some pundits opine that Malaysia’s government-linked entities have achieved sufficiently strong business practice to stand on their own, helped greatly by the Economic Transformation Programme (ETP) with its directions set out for Malaysia’s core industries and laser beam-like focus to elevate the country’s financial standings.

Caretaker Prime Minister Datuk Seri Najib Razak’s caution of stock market volatility, in the event of a change in leadership after the 13th national polls, should certainly be carefully weighed against a reassurance of stability by the main challenge, Pakatan Rakyat.

Independent analysts venture that the downside risk has already been factored in.

The benchmark index remained strong in the first quarter with foreign funds snapping up shares amounting to RM11.4 billion net in the open market, compared with RM13.7 billion for the whole of last year.

Even after election and nomination dates were announced, they continued buying to the tune of RM747 million worth of Malaysian equities in the open market, reported the Star quoting MIDF Equity Research. The report added that this development translated to 18 consecutive weeks of solid buying by foreign funds.

That said, overarching strength – in domestic fundamentals, corporate balance sheets and earnings growth – and liquidity are signs that Malaysia’s stock market could have a life of its own that won’t be swayed by the uncertainties of the keenest national elections to date.

But then again, any pundit will also realise that nobody can predict the nature of the beast known as “Jabba the Hutt”. So the question remains: will the market roar or whimper after the 13th General Election? Whichever way it goes, may the “Force” be with you in your investing venture

 

Source of article taken from: ( http://www.businesscircle.com.my/the-underlying-force-within-malaysias-stock-market/ )

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