Thursday, October 27, 2005

Divine Intervention As A Corporate Strategy

MAS incoming managing director, Idris Jala, plans to tap into talent inhouse at MAS using the same five “ingredients” he used to turn around Shell MDS (M) Sdn Bhd. His 5-prong plan to turn MAS around include:

1) Going for the impossible
2) Anchoring everything (ranging from strategy, plan, activities, processes, structure and culture) on a profit and loss statement
3) Instituting discipline in action in a rigorous and relentless manner
4) Changing one’s leadership style depending on the team development
5) Praying for divine intervention

As he was addressing a group of academics, plus the fact that he is NOT officially managing MAS yet - I will give him a bit of leeway in his plan to turn MAS around (it is still full of generalities). I have no problem with Points 2, 3 and 4. Point 1 - Going for the impossible - sounds a bit like a someone's been to too many "self-improvement" courses (if you know what I mean)... I think I will start one soon.. to be called, "7 Reasons Why Self-Help Books Won't Work".

The other is Point 5 - Praying for divine intervention. I though that would be relevant if you were Moses and you are trying to lead a group of people across the Red Sea. Or am I mistaken as to the gravity of problems at MAS?? Reliance on God is a good thing in our everyday life, but to seek for divine intervention.... hmmm .. Points 1 & 5 kind of triggered some bells of caution... I do hope I am wrong, gotta at least give the guy a fair go at it, ... but he is not helping (if you know what I mean).

Wednesday, October 26, 2005

Rebuttle To 'King Of Emerging Markets' On Liquidity


The KLCI traded sideways for the past few weeks. One after another, foreign research units have downgraded Malaysian equities in preference for other bourses (e.g. Merrill Lynch, UBS and CLSA). Mark Mobius is the closest thing "emerging markets" will get that resembles Donald Trump. The traveling emerging markets' hero could easily pass as a "baddie" in a James Bond movie. Yet, what he says is followed closely by the international media... cos ... there is no one who champions the emerging markets quite like Mobius. The savvy self-promoter does very well for himself and his company (Templeton Emerging Funds Inc) - the firm probably lets him have a high profile as that would bring in the business, no doubt.

The Edge did an interview with Mobius (Oct 17, 2005 issue) and he highlighted a few interesting factors to explain why foreign funds are shying away from Malaysian stocks.

MM: " lack of liquidity ... need to grow the market... need to privatise the pension funds.."

Dali: There is only so much Malaysian markets can grow. Do you know how small we are. Take any ONE of the Top 10 market cap stocks in the US, any ONE is bigger than the entire listed market cap of the 1,000 odd listed companies. We are small, our base is small. Any credible foreign fund would probably only look at the top 25 market capitalised stocks as they are sufficiently big enough and liquid enough to move in and out. You CANNOT just ask us to grow our markets. To even have 20-30 stocks that are big enough to satisfy international fund managers' requirements is a task in itself. So, don't just open your mouth and say we need to grow and need more stocks with liquidity WHEN you should know better than others that "big companies" are hard to come by or be nurtured on a base population of 24 million.

On privatising our pension funds, I think we need to protect more the retirement funds of Malaysians, rather than provide additional revenue for foreign fund managers (who may or may not improve on overall long term returns). I am sure Mobius would like us to privatise more of our pension funds...

Two Sides To LIQUIDITY
On the liquidity issue, well again that boils down to the size of a normal big company in Malaysia. It takes time to grow an international company. You do not expect the MISCs and Petronas or Maybanks to just give up more shares just to satisfy the foreign funds investing requirements??!! Having said that, Mobius do have a point here, Government linked corporations and other top 50 market cap firms need to consider allowing more shares in the hands of the public in order to provide sufficient liquidity. There is not much point in holding over 50% of shares to maintain control when 40% will do. In fact recent studies have indicated that large companies (especially government linked firms) have outperformed the market over an extended period AFTER they have reduced their shareholding (creating more free float in the markets). If big boys cannot get in and out easily, they won't be interested.

Liquidity is not so simple. Do we just want to boost liquidity so that more foreign funds can invest in certain stocks? If that's the case - pray tell, what is the rationale for doing that, what benefit can we gain from getting foreign funds to invest. Do they somehow result in higher valuations (possibly), but so too will the fall be greater (when they pull out)... We want foreign direct investments NOT share traders, FDIs will result in employment and long term committment to the local economy. There is no difference in having Templeton as a holder of Malaysian stocks than say EPF. Unless we are saying that there are INSUFFICIENT local funds buying/holding Malaysian shares - which I don't believe to be the case. EPF could easily lift the active investing level in local shares substantially without hurting the overall risk portfolio.

Sure, foreign fund managers will belittle and crticise the short comings of investing in the Malaysian markets. Some are constructive but some should be IGNORED especially when the main beneficiaries of their talk is foreign funds themselves. We need to appreciate things that are beneficial to Malaysia like FDIs, and capital/bond raising for Malaysian corporates and the government.



Monday, October 24, 2005


Buy "ME" Pleaaassseeeee ...

What is this fixation with certain Malaysians that foreign funds MUST/SHOULD buy Malaysian stocks... is it a patriotic kind of thing, somehow "they love us more" if they do,... and if they don't buy, it means "we are not worthy... enough". Get out of the pre-independence, second class citizenry, developing country mentality. Stock markets are just a structure where shares are bought and sold, whether foreign funds come in or not DOES NOT mean we are running companies with "world's best practices/standards" or we are making strong strides in the respective industry's competitive landscape. NO, it does not mean that, one way or another.

People buy stocks if they think it is going to make them money - even if we have very good companies, people might not buy because we might be overvalued already. There are tons of options for the global investors, and Malaysian market is just a little thing. Get over yourself... do you know how big is the Malaysian stock market?? Take just ONE, any one of the top 10 market cap stocks in the US - it is bigger than the total market cap of all 1,000 companies listed in Malaysia. Now we are small, it does not mean we are "nothing", that is the reality. Here we have certain reporters and commentators crying wolf and trying to find hidden motives and agenda for Malaysian stocks NOT being on the radar, .... hey, anyone who blinks will miss the KLSE.

As a matter of fact, foreign funds ignoring smaller markets could be perceived as a good thing! Foreign investors will only but if they think they can make money. If they cannot, maybe the Malaysian stockmarket is fully valued or over-valued... or it could mean that the local funds/institutions and local private investors have "snapped" up all bargains - leaving no room for good stocks to be "under-valued". In other words, we could also argue that when foreign funds/research issue BUY on a certain country - that its because the local funds/institutions and local private investors are NOT SAVVY enough to pick up under-valued stocks. So which is which... a back-handed compliment??!!

It is a good thing to compare our performance with other markets to improve our ways, but don't get emotional about it. Its just stock prices not the price of my self dignity or the price of our children ... get a better perspective. True worth comes from knowing who we are ... we do not need some else outside to tell us that today we are just $1.56...

Of Road-Shows, Dream Teams, Foreign Funds & Research

ECM Libra and Merrill Lynch led 'a dream team' to make pitches to players in London on Sep 12 and New York a day later. The team was led by our Prime Minister Datuk Seri Abdullah Ahmad Badawi, atgged along by Azman Mokhtar, the head of state investment agency Khazanah Nasional; Lim Kok Thay, the head of gaming conglomerate Genting; Francis Yeoh, the owner of power and infrastructure company YTL Corporation; Ralph Marshall, the chief executive of satellite TV provider Astro All Asia Networks; Ahmad Zubir Marshid, the chief of Sime Darby; George Ratilal, the finance head of oil company Petronas; Nazir Razak, the head of investment bank CIMB; and Tony Fernandez, the chief of budget airline AirAsia.

A week after the road show, Merrill Lynch downgraded Malaysia to 'underweight' while upgrading that of South Korea. The Singapore Business Times opined: "With one voice the global investment bank Merrill Lynch sings praises of Malaysia as an investment haven and with another it is warning the investors off, much to the irritation of parts of Kuala Lumpur's business and government community... Merrill's regional strategy report dated Sept 20 was essentially a plug for the Korean exchange".

Could that be interpreted as a putdown of the "success" of the road show? I think not. The Business Times reporter did not appreciate the workings of a investment house and the overall purposes of a road-show. There is such a thing called "the Chinese Wall" or the independence of research from corporate finance/investment banking. In fact, International investors will appreciate the independent calls from Merril's Research group which refused to play along with their investment banking counterpart. CLSA and UBS also came out with similar downgrading research recommendations on Malaysia within a couple of weeks of the Merrill's report - should we read something more sinister into this also??!!

Commentators who think that the Merrill's research report is a "slap in the face of the organisers" probably have a naive appreciation of the working of a financial powerhouse and the overall purposes of doing a road-show. Possible reasons for doing the "road show":

1) dream team effect to lure fund managers and bankers to the presentations

2) future capital raising agenda, be it a specific corporate multi billion bond issue or even government bond

3) to generate positive perception for global investors in Malaysian market

4) for organisers to latch onto bigger and more important fund managers and bankers for networking purposes

5) to encourage global investing audience to put these companies on the radar for future "capital raising/investing" purposes

To think of doing a roadshow to encourage more buyers for a certain stock is so naive and 1990s - nobody worth their salt would do that or even need to do that. So, to even link the downgrading of markets is not even necessary. Markets get down graded and upgraded relative to other markets competing for the same group of investors. Now that Malaysia has been downgraded by a few foreign houses, people suddenly are bringing up various factors why they are ignoring Malaysian stocks - low returns, transparency and governance not sufficient, lack of liquidity, blah blah... A year ago, when foreign houses were recommending buys on Malaysian stocks, does that mean these reasons do not apply then.

As for the bumiputra tycoons & CEOs who felt slighted on not being invited to the road-show ... please look at the bio-data of the companies invited to give presentations. It is so obvious from the list that the companies all can/will be raising large sums of funds in the forseeable future (we should be looking at upwards of US$500m bond issues)...or possibly government bonds. So if your company is not invited, well, you are not big enough, and it has nothing to do with race.