Wednesday, September 19, 2007

Fair Commentary

Everyone is entitled to his/her opinion of anything, I guess. But if we are to voice them publicly, say in a blog, we have to make sure they are logical, well argued, substantiated, etc... Blogs that try to promote openess, accountability and transparency in our government must not be overzealous in their commentary.

For example, you cannot simply link sustained low volumes in the Bursa to a poorly received Budget, its not that simple. Stock markets are open channels and it tries to digest information from all corners. It is a forward discounting machine. A Budget is only a small portion of an overall financial blueprint for government allocations. There are tons of factors more important to the markets, such as: the subprime mess; the Fed's pending rate cut and its quantum; the implosion among hedge funds; the collapsing USD; the yen carry trade; the trande sanctions against China; etc... So, we cannot simply pick ONE topic and link it directly to the depressed bourse as we like.

Take another example: "Just seven months ago, on February 9, The Star had screamed on its pages: Good Times Are Back. Then, Abdullah Badawi -- yet another bloke not trained in business and finance -- was clamouring for the boar to charge at 1,350. Anyone could do the same if RM40 billion of Petronas money is pumped into the stock market, and insiders can make a cash-out to feed the war-chest. Ain't it?"

What's wrong with the above sentiment? Let's face it, you may or may not like Badawi, but he was right on target in predicting the 1,350 level. We have to be fair. I totally think that a PM should NEVER give out market predictions as it does not fall under his scope of duties, and that may compromise the integrity of his position - but that's another thing altogether. The serious mis-statement was "anyone could do that if RM40bn is pumped into the stock market ..." This is an unfair and superficial statement. The writer is assuming that the market CAN BE "manipulated" - if we can, why did we endure such a long "holiday" in 97/98/99 following the Asian financial implosion? Surely we can scrape together RM50bn to buy into the market and make things better. If we can so easily move markets, why did we spend 2004 and 2005 below 1,000 level for such a long time while every other regional bourse outperforms the KLCI? We have to stop the conspiracy theorising, it only applies to certain things, not all things.

For a market to move, we need a confluence of factors. Liquidity must be there, earnings growth relative to interest rate outlook must look good, country balance sheet recovering, etc... The announcements of the various "corridors" are just a small number of a very big pot of other catalysts bolstering our markets. The global picture favours equity, and KLCI is on the global investment radar screen because: government balance sheet has improved significantly over the past 8 years; unwittingly we have one of the highest foreign reserves/capaita in the world now; more firms have expanded successfuly into other Asian markets; soft commodities have been on a tear for the past 4 years; our valuations have been lagging in the past; the ringgit looks to have much higher chance of reaching 3.00 than 3.50 against the USD over the next 12 months; the smaller Asian economies have been able to reposition their industries alongside the China machinery, rather than compete against the behemoth; etc.. Hence to say that RM40bn of wishy washy proposals / injections can move heavens and earth is myopic and makes the entire argument reeking of excess-biasedness (if that's a word), which in the end deflates what we want to say.

Fair is fair, we need fair commentary. There is enough propaganda in the papers already, we need to at least rise above that in order for serious blogging to be respected.

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