Wednesday, March 24, 2010

Astro, Now Measat? Bigger Picture Issues

Investors holding Astro and/or Measat must be pleased and disturbed at the same time. You are pleased that Astro has finally jumped up, but displeased that the offer price, while generous considering the price traded over the past 6 months, may still be below what can be considered as fair value. Looks like the same thing is happening to Measat, but that has yet to be confirmed.

I am all for listed companies going private if the markets are not able to accord a fair price. In most developed markets, its OK for "good names" to go private every now and then, but it has to be a two way flow - i.e. some companies privatised, some new interesting companies being listed. That is not the case here, its all mostly one way.

Already we are seeing a dearth of international investing funds in Malaysian stocks - taking out more big-caps out of the bourse will only reinforce the backslide.

We cannot blame the companies, I mean, who wants their company to be constantly undervalued - it totally restricts many facets of the advantages of being listed. For example, as a means to grant options to motivate employees, or to issue shares to fund acquisitions, or to raise funds via convertibles and/or warrants - all that are thwarted because you don't want to issue shares cheaper than what you think is fair, and ESOS does nothing for your employees. Needless to say company shareholders are not getting fair returns for investing and the owners for managing the company.

Just imagine if IOI Corp and DIGI were to be privatised as well over the next 6 months. If you have two or three big names doing that every 6 months, you'd have a market with just second and third liners very very soon - what a cowboy market then.

The cause for this is undervaluation. This issue will not only rob the markets of investable names among big funds, it will also shoo away potential firms considering to list on Bursa (hint hint, Wilmar).

The lack of participation in the markets is the crux. We may try to blame it on foreign fund managers (but can we really???), as it is their prerogative to choose to invest into the country or otherwise.

Can we blame the local funds then? Unless most of the local funds are 50% cashed up, which may imply there is something sinister there, which is not the case anyway. Whether they are local or foreign, they have to maintain some sort of return for them to invest - cannot blame any of them for the undervaluation.

Cheap fix - I shudder to think of cheap fixes. Numero uno, double the allowed investment limit into local equities by EPF. Yes, it will cause some sort of buying but is that genuine??? You can unlock as much funds as you like from EPF or even get Petronas to start a Malaysian Equity Fund worth RM50bn - you will be mopping up the free float THAT nobody wants to own in the first place. In the end the prices go up not because of genuine investing goals but because you have shriveled up the free float. DO NOT EVER DO THIS!!! Don't set up another Valuecap everytime you see a period of undervaluation - address the underlying causes.

We all know why the undervaluation occurs, some of it may be cyclical in nature or thematically we are not in the picture for now. Both factors may answer some of the undervaluation but not most of it. I have an opinion on the lack of market velocity and undervaluation in Malaysian shares:

a) the surge in deficits are not effectively addressed with sufficient IMMEDIACY, there are a lot of proposed measures but being postponed and delayed, the longer it goes on, the more reason people have for not plonking their money down

b) reworking the NEP, be it 1 Malaysia or the New Economic Model or revamping the NEP, everyone knows NEP did not do its job well, we see no strong political will or sufficient intellectual strength to revamp the situation as the global economic paradigm has shifted, the regional economic paradigm has shifted, our competitiveness in many sectors have be altered, the need for a more transparent and meritocratic economic model in order to retain talent and improve effectiveness have been put aside or delayed, our education system have not been able to keep up with the demands of the new world (let's see how many sons and daughters of all Ministers actually attend public schools) - we kinda know where we should be going but we do not seem to have the political will to get there

c) "the sue me, sue you, sue me again, I dare you to repeat it outside the Parliament, defections, bribery to defect, denials left right center, power struggle in all parties, etc" ... all that have dogged the headlines for the past year and a half, I think the general public are generally disgusted beyond belief, nobody really cares anymore, it seems the ones that are supposed to move us ahead are the ones that are stopping us from moving anywhere

p/s photos: Maki Horikita


walla said...

KuLi said as much but you said it with oomph.

We all knew this for years.

It's adios. Those who have made their piles will go mobile. Those who don't will save to go mobile. Those who can't are the ones left to await expiry.

This country will just coast along, the seasonal sales will continue, people will still queue outside restaurants, money will still rumble a bit here and there. But greatness and real development? From where and by how?

End of prognosis.

4rdiyanto_bay said...

very nice blog