Friday, October 28, 2011

How To Fix This Major Thing (Important Posting)

Many observers seem to think that the spate of management buyouts, General Offers, privatisations of listed companies is a good thing. Of course this is a very bad thing. If it was infrequent, then we can say it may be positive. The rate at which it has been happening means that investors are not according the "right valuation" for these counters.

If you still think this is not a problem, then you must be aligned with BN. The main troubling aspects which led to this: corporate transparency (or lack of); too many injudicious RPTs; trampling over minority interests (too many to mention); institutionalised corruption and leakages; and mismanagement of resources and GLCs. All that are important contributors, but none is as significant as the crowding out effects by local funds holding way too much stocks.

If you can track the amount of shares held by the big boys, namely EPF, PNB, etc... over the last 10 years, in particular over the last 5 years, you'd have a very good idea what has been happening. This crowding out effect causes foreign institutional investors to continue to avoid or reweight their exposure to the detriment of Malaysian listed counters. They feel that the index is overly "controlled", susceptible to "manipulation", and a dire lack of free float.

The more the local funds control, the easier it is to push through sweetheart-deals, which is not palatable to most investors. Even local private investors have been feeling the same way. Ask anyone you know, they are mostly holding A LOT LESS STOCKS NOW compared to 3 years or 5 years ago. The disillusionment is palpable.

EPF and PNB can say that they have way too much funds inflow and just have to keep upping their stakes. You and I know the dangers of that. Every year they could actually trade some of their shares higher by 5%-10%, close it higher and pay out dividends - although it is not as sinister as it sounds, this resembles a Ponzi scheme. Till it it gets to a stage where it is so easy to move the shares 5%-10% every year and the dividends keeps everybody's mouth shut. Who is there to whack the shares down if the fundamentals don't really match up?

We must have a roadmap to reduce all local fund holdings to less than 20% as they are not in it to "control or run companies" (hello, PNB, what are you doing with SP Setia???). All listed GLCs should have the government holding no more than 35%, why the need to hold more???

We also need EPF to energise their rules for allowing individuals to do their own investing, this will reduce the burden every year for EPF. Right now, the scheme is good, allowing individuals to invest in "qualified funds on their own". However, something must be done to the stupidly high 3% fee to do so. A more reasonable rate should be just 1%.  Do you know that most of these type of funds in the US charges less than 0.5%, some are even entry free as they have yearly management fee. The second part is to make all the "qualified funds" to charge no more than 0.75% fees a year.

So, there you have it, we will not know what hit us until one day all the "decent companies" are privatised, and we are left with GLCs and punting stocks. What a wonderful stock market we would have then!!! 


Goh Kong Chee said...

I'm totally agree that 3% impose on the EPF withdrawer for the unit trust fund investment is way too high, the purpose of we want to invest in Unit Trust is wish that its return can outperform EPF dividend rate, if EPF give 5% dividend, that's mean the money I take out from EPF to invest in the fund must to have at least 8% return to outperform the EPF as we already lost 3% in the initial investment, and I don't think most of the investor can get the correct timing to invest in the Unit Trust fund which mean the 8% return can be not an easy task for individual investor, so why border to take out money from EPF to invest?

Kingsmen said...

It must be said also that the minority interest have only a certain amount of rights accorded to them. These are limited powers. Everyone would want to have their investments protected. Especially so including the substantial holders. If the free market does not appreciate a company's intrisic value one could not entire blame the big sharks (the major shareholdings) from moving in for the kill esp so at current depressed markets. Then there again we go into the argument of value investing or the speculation of it. Even the transparency of disemination of information is blurred and manipulated by its publishers.

However there are quite many out there profiting from valuation investing, who knows a particular company's value thus have benefited from the 'taking private adventures'. The only flipside is that most of the time we are not satisfied with the premiums accorded. And this is where we use the minority interest rights to fulfill our lust for more profits.
In either case one is never wrong for asking more or the less of it.

the chinese saying 'big fish always eat small fish' ...always true always real.

ronnie said...

The reality is this. A friend who works in a fund management company that allows discretionary management of funds withdrawn from EPF informed me that the individual tends to speculate. In a matter of months, the monies are depleted and eventually wiped out.

GstrapInUse said...

We'll soon mimick Gadaffi's regime with all decent companies turning into GLCs....

Unknown said...

i personally believe that a government should be ONLY that - a government. it should never be in business and compete against its people. it is there to govern and manage public properties by using funds collected from the public. unfortunately the links between the government and business in Malaysia is so strong that this seems to be growing all the time.

CheahSweeKuan said...

It is just a small part of their greater scheme. Ketuanan you-know-what. We have over-bloated public services and GLC's at every nook and corner to ensure their continue control over the minority. With all these in place , it just runs on auto. Smart guy that Apanama.