NST : The Big Picture: If only it could be 10 easy pieces
Yap Yok Foo
16 March 2003
The Big Picture: If only it could be 10 easy pieces
Munir Majid
IT is no easy thing to shake the capital and stock market out of its
exuberance, or its depression.
Alan Greenspan tried by raising interest rates to check the
"irrational exuberance" of the dotcom Nasdaq bubble, which burst in
2000 and, arguably, caused the recession in the United States that had
taken hold by the end of that year, well before the terrorist attack
on America of Sept 11, 2001.
Now, with an American attack on Iraq hanging over the world like the
Sword of Damocles — and with the threat of terrorism everywhere —
stock markets the world over are in a state of near paralysis.
There is no magic wand that can turn sentiment around — unless common
sense prevails in the US political leadership, peace breaks out
instead of the constant threat of war, and the world gets together for
the business of doing business instead of doing one another in.
Believe me, that would move markets and turn sentiment around.
However, in the meantime, it does not mean markets will simply roll
over and die. They continue.
They should be worked on to fulfil the economic function of capital
formation, supporting corporate activity and growth at whatever pace.
It is in this context, therefore, that we should assess the 10
measures to enhance the Malaysian capital market as announced on
Tuesday by the acting Prime Minister Datuk Seri Abdullah Ahmad Badawi,
who is also the acting Finance Minister.
The 10 measures are not a magic wand to set off a market rally,
however much we might unrealistically wish them to be.
They are, nevertheless, necessary measures to address certain
weaknesses and to provide certain incentives in the primary and
secondary markets.
It is at times like this that we should introduce such measures, even
if these measures are no magic wands and even if they are not able to
fulfil the wish list of all sectors of the market.
Indeed, they would have a significance beyond the specific measures if
they were to be followed up by a constant appraisal of their impact
and by further introduction of additional and corrective measures.
Necessary But Not Sufficient
WHETHER or not a glass is half full or half empty is a matter of
perspective. Looking at it from this side — the current state — of the
market, it will of course be seen as half empty.
Yet at the same time, different interests in the market will want
theirs served first and foremost.
Thus, the proposal to encourage the merger of government linked
companies so that there will be many more bigger companies listed on
the exchange to interest the larger funds — especially foreign — in
the Malaysian market is seen as not being concerned about smaller
companies; just as is the proposal to exempt from the profit track
record requirement large companies with a minimum market
capitalisation of RM250 million (based on proposed issue price) and a
latest annual profit of RM8 million.
In the current mood, it is forgotten that the Second Board was set up
for smaller companies, with a reduced profit track record, and then
Mesdaq — with no profit track record requirement — established for the
listing of even smaller companies and start-ups, short on financial
capital but long on human capital.
Even less well remembered is the violation of trust among too many
Second Board companies which sought to exploit their listing status
for paper gain rather then for real corporate growth and activity.
Having said that, it is also true that genuine small and medium
enterprises (SMEs) have a hard time securing credit and finance in
financial and capital markets, and this hits particularly at the
genuine Bumiputera companies which do not have access to informal
credit markets.
Further efforts should be made to meet their needs, even as,
admittedly, we must encourage the listing of big, even giant, firms on
the exchange.
Just imagine how Petronas would dwarf all other companies if it was
listed on the exchange!
Different Sides To The Market
BIG or small, they all have a role in the capital markets. For
investors, they afford a choice, based on their portfolio and
risk-reward profile.
Both the types and numbers of investors in the market have to be
increased, and the choices before them diversified. This would create
the interest and liquidity in the capital markets on which their
development depends.
Even as we reduce board lots and stamp duty to encourage greater
market participation presumably among small investors particularly, we
should also remember that these investors take their lead from the
funds, unless their decisions are based purely on speculation and
rumour, as has happened too many times in the past.
The greater institutionalisation of the market, therefore, is
something we should always seek to achieve.
The fund management industry in Malaysia is still underdeveloped.
There must be a sharp policy focus on its development.
Imagine how much more active and professional the market would be, if
there were 20 additional fund managers managing RM5 billion each of
half of EPF's assets.
Imagine, further, if we were also to establish retirement pension
funds from the EPF to compulsorily manage the withdrawals at age 55,
when the average life-span is now between 75 and 78.
These monies, when well managed, will deliver a steady stream of
income for the retiree and, after his death, for his surviving family
— instead of being potentially squandered, leaving behind serious
social and emotional, not to mention financial, problems.
Of course, we will have to be careful in developing the fund
management industry, to protect capital values by imposing contractual
obligations and risk management standards that would insulate the
investor from wrongdoings and unprofessional conduct.
We should learn the lesson from the ill-fated State unit trust funds
by recognising that political objectives are not best served by
unwarranted intervention in the management of unit trust assets.
On the supply side, as is implicitly recognised in the measure to
encourage the listing of larger companies, the impetus must be to give
investors greater choice.
Big or small, income or capital growth driven companies, the thrust
should be the offering of a diversity of assets to suit different
requirements.
In a bear market, the predisposition might be for safety and income,
yet a return which is higher than what might be offered by bank
deposit rates.
One way to achieve this quickly is to get high grade bonds listed on
the exchange. Another — less immediate but still soon enough — is by
unbund-ling assets in a number of companies, such as the utilities,
which would release to the market both safe and steady income
companies, as well as high growth and more risky ones.
Even without a bear market, the older age group of investors would
prefer the one and the younger ones the other. The point is, there
must be a choice to suit different investor profiles. In sum, there is
no magic wand. Do not expect it.
But there can be good progress in the development of the capital
market in the next one to two years, if we build and expand upon the
ten measures announced last Tuesday.
There must be constancy of purpose and strong follow through.