Friday, February 24, 2006

Of Market Rallies, Stock Manipulation & Rubbish IPOs

A frequent visitor and commentator to my site is Rohan888, love your learned comments, man. It gets my juices flowing. He just posted the following reply: "The last half year at least 90% of the BM trading days losers outnumber winners, and 100% of the days there is last minute support by "the invisible hand". The only reason the index is holding up well is because of the top 10 counters, who have more weight than the other 990.Add to this that one of the most speculative counters (THHin) is associated to the former head of the SC, and that the current head of the BM thinks it is a good idea to swamp the market with even more rubbish IPO's.Are these good signs for the Malaysian market? I get the impression that it gets less and less relevant in Asia let alone in the world, and for the right reasons it seems. "

1) 90% days are down days - That is pretty normal actually. A normal year would see probably just 2-3 bullish runs, each lasting between 2-4 weeks. So you can guess how the rest of the days are going to be like. Bull runs are necessarily like that because it needs the convergence of a number of factors before taking off - and the main factor being sufficient liquidity in the system. Its a bit like inviting people to a party and getting them drunk for all to have a good time - it is hard enough to drag most to the party as some may be feeling down due to job instability, got laid off, fending off bankruptcy, business failing, overheads rising, blah-blah... So, to get sufficient people to the party is a headache in the first place, then you have to get them to drink, and for some to drink they need the right mood music, etc... So 2-3 bullish periods a year is about average.

2) Top heavy - Unfortunately, not talking about girls here. The index is weighted to favour the top 10 or even the top 20, hence the index is more stable - fair comment. However, that is usually the case in most markets. One can only support the index so much, I mean, did you see how far the index collapsed to in 97/98, we are talking 400-500 level. Where was the collusion to support then? Even so, last year the KLCI was one of the worst performers in Asia by staying put the whole year, so I do not think there had been a collusion or conspiracy by the "invisible hand".

3) Even the ex-head of the SC has to find work somehow. When Ali Kadir was in charge of the SC, I must say there were headways made in corporate governance. TH Hin is a decent company. As in some boardroom tussle, shares are bought up to shore up defences or alliances. If you look at TH Hin's shares, it went back to normalised trading range pretty quickly. A properly manipulated counter would require concerted effort to prop up and take in the buyers over a period of time and then unload gradually before letting the bottom fall off - that takes at least 1-3 months. Have a comparison on price range and trading activity of Farm Best or Mithril - very deliberate and not very subtle at all, man. TH Hin does not fall into that category.

4) Rubbish IPOs - That I agree with you but not all IPOs are supposed to be decent, or else people won't have to do their homework. If you read my blog a couple of months ago on Mesdaq stocks meltdown, you will find a linkage between poor IPOs and certain merchant bankers who brought them public. Some merchant bankers are careful, cautious about their reputation... while some have targets to meet or an aggressive profit sharing scheme. Buyers beware. Malaysia has a record which not many people know - we probably have one of the higher ratio of GDP that is listed in the world. What that means is that once a business (any business) makes RM1 million - RM3 million a year, merchant bankers will be knocking on their doors to prepare them for listing. When Mesdaq was introduced, you don't even have to make money, just have a good idea (no need to be brilliant, just good) - not that I am knocking Mesdaq. Hence, what you are left with that is NOT LISTED are laundromats, papa-mama shops, coffee shops, mamak stalls (even though many are raking in millions, nobody should know the real figures right!, so no listing), etc... Most developed countries in Europe have only half of our percentage of the economy that is listed. So, getting listed in Malaysia is a normal procedure, and that is also why the stock market's fortunes tie in so closely to our personal and country's financial well-being. The link is a lot less in many developed nations.

2 comments:

zentrader said...

"we probably have one of the higher ratio of GDP that is listed in the world."

1) Is that healthy sign or bad?

2) Also if we can short sell single stock maybe the story will be different?

3) Any hint which banker IPO most investable and which one not?

TQ

Salvatore_Dali said...

Zen,

1) good in that more people get rich quicker, more money is recycled and velocity of money is good - when it is kept private, money and assets tend to stay stagnant; bad in the sense that we need to do a lot more homework before buying shares or buying on rumours.

2) I think short selling should be legalised asap - a mkt does not always go up, brokers all hope for one way traffic, we need to allow people who have bearish views to make similar bets - the mkt will be more transparent and better valued - more reward and punishment for good and bad performances by company

3) i think we should look at Mesdaq stocks' listings. Almost all issues brought to the mkt by Public Bank performs very well (no, I do not work for Public Bank). CIMB tends to rely on connexions to get deals while Arab works very hard to get deals, some good, some not so good.