Thursday, February 14, 2013

Markets & Election Results

Will the Share Market Rise or Fall if there is a Pakatan Victory?

by Koon Yew Yin

Quote from an angry Internet reader
If [the] market plunge(s), it will rise up again but if a country goes bankrupt, it is gone forever. I don't know why you can't get it in your brain unless your brain is always thinking of sex with your mistress.

During the last few weeks there have been increasing predictions from Barisan leaders emphasising that there will be a sharp fall in the share market should there be a Pakatan Rakyat victory.

The latest prediction by MCA leader Chua Soi Lek in a party event at Kepong argues that Malaysia will witness a “‘huge financial disaster if Pakatan Rakyat comes to power in the 13th general election”.

This type of electioneering tactic aimed at frightening the electorate is dangerous and irresponsible. How can the MCA president be so confident as to openly declare that our stock market will drop to 500 points within a week if the opposition wins power?


Challenge to Dr. Chua Soi Lek
Let us subject his prediction to closer analysis. Firstly, it is not clear whether he stated that the KLCI will drop by 500 points or drop to 500 points.  Whichever is the correct version, his claim implies that anything from one to two thirds of the total share value of the KLCI will be wiped out due to the election result.

Now if this were to happen, the drop will be unprecedented in the history of share markets anywhere in the world. So far as I am aware, no modern national stock exchange has had such a sharp fall as a result of a national election outcome and I am sure it will not happen in Malaysia.

I am willing to place a big bet with Dr. Chua that his fears of a 500 point are unfounded and baseless.  The loser of the bet will have to donate an agreed sum of money to the other person’s preferred charity.   I hope he will agree to this and prove to be a man of his word.

Will the market rise on a BN victory
Not only should we discount the possibility of a sharp fall, but we should also – on the basis of stock market behavior elsewhere in the world – not assume that the Malaysian share market will automatically rise as the result of a Barisan victory. For example, on November 7th, immediately after Obama, the incumbent Democrat president was returned to power, the Dow Jones industrial average plummeted as much as 369 points, or 2.8 per cent, in the first two hours of trading. It recovered in the afternoon, but ended down 313, its biggest point drop for more than a year.

Various analysts that I have talked with have made the point that Chua Soi Lek is not a stock market expert. They argue that in trying to exaggerate the prospect of a market meltdown, Dr. Chua is contradicting the Barisan’s argument that the economy is fundamentally sound and resilient.  

At the same time, these analysts anticipate that there could be a market fall in the KLCI even if the Barisan is returned to power. They base this prediction on several factors:

1.       the BN through its control of EPF and other major government and government-linked investors has been supporting the market and propping up UMNO-linked counters such as Felda Global Ventures Holdings Bhd (FGV) which is struggling to hold on to its initial public offer price of RM4.55.  Without this pre-election support aimed at placating the Felda settlers and gaining their vote, FGV will definitely be trading below the IPO price.

2.       The European and American economies are still going through a phase of recovery. Although there has been an inflow of foreign funds into the Malaysian market, there could just as quickly be a reversal of financial flows.

Prediction of market rise with Pakatan victory  
What is likely to happen should there be a Pakatan victory? My prediction is that there will be a rise in the share market should there be no attempt at violence or a coup d’etat by the losers.  This is because of the following factors:



1.       The Malaysian economy has been under-performing all these years while under BN rule. We already should be familiar with the growth of GDP per capita of South Korea, Taiwan, Singapore and Malaysia. Since 1980 to 2011 we have been under performing every single one of those countries cited where once we we ahead of them.  Should we continue under BN rule, our economy is likely to continue to under-perform and our stock market will continue to stagnate not only in the short term after the elections but for the long term.

2. Foreign investors who have long been underweight in the Malaysian market due to Mahathir’s Disastrous Economic Model built around mega projects, crony capitalists as key players, and other distortionary policies will be attracted back into the market. As recently as in 2011, Bank of America Merrill Lynch noted that Malaysia remained a “big underweight” for investors in emerging markets. An underweight call is a recommendation for investors to reduce their investments in a particular security, asset class or, in this case, country. Malaysia also slipped from 14th place to dead last among the 15 countries studied by the investment bank, despite the roll out of big ticket Economic Transformation Programme projects.
There are other indicators that the market will not take fright but will rally on account of a Pakatan victory. As pointed out by an SME investor, they include:

1.       The fact that the opposition states of Penang, Selangor, Kedah and Kelantan have attracted more investment that the ten BN states by accounting for RM25 billion in investments comprising 53 per cent of Malaysia’s total investments of RM47.2 billion in 2010.

2.       If a major sell-down occurs in the Bursa as a result of a Pakatan victory, the nation’s economic institutions such as EPF, PNB, Khazanah and other GLCs would support the market.

3.       PAS has administered Kelantan for more than 20 years, and Kedah for five years. These two PAS state administrations have neither acquired nor appropriated property, assets or businesses belonging to non-Muslims.

Proposals for a sustainable market rise
Although I am optimistic that the market will rise on account of a Pakatan victory, it is necessary for the new government to act decisively when it comes to power.  I would like to propose the following measures to ensure that the post-elections market rise is sustainable:

1.       To form a business council with captains of the leading industries to find ways for economic improvement and expansion

2.       MACC directly under Parliament to look at illicit money outflows and recovery of the monies

3.       Investigate the way Petronas sells our national oil and to verify the rumour that it has a long term contract with a company which buys it at much lower than current prices.  



19 comments:

hoseadavids said...

Mr. Koon makes more sense than DVD Chua.

I believe too that KLSE will go UP if PR win the election.

bruno said...

Well,first of all we have to ask who is this Chuah Soi Lek.He was the health minister from Mca caught with his birdie on the loose with a whore in a budget hotel room.

He was a political outcast until the Umnoputras,political masters of the Mca planned his political comeback.The reason why Umno choosed this disgraced man to oust Ong Tee Keat as the Mca chief,was because OTK was becoming a pain in Umno's ass,always harping on the PKFZ scandal.

But the worst of the pack of mongrels was the Mca members,who caved in under pressure from Umno,to elect this disgraced man to head the Mca to represent the Chinese community.It brought shame and disgrace to the Chinese community to have this porn actor,who cannot control his birdie having it flying freer than an uncaged canary to represent them.

For this the Chinese will punished the Mca by sending them into political oblivion,making sure it will get decimated this coming GE.Good riddance to a pack of sex crazed mongrels.

Unknown said...

The attached table showed VOLUME LEVEL OF MUSIC versus PORN . It does not show the growth of GDP per capita of South Korea, Taiwan, Singapore and Malaysia from 1980 to 2011. Please provide the correct table info.

Remnant 888 said...

So now, we have more reasons to standby our cash to catch the bottom as the Index plunges...

It seems funny as I read CSL's comment on the market plunging hundred of points when BN loses.
It's like saying: if you vote opposition-> market crashes.

Corollary.
So we investors or traders alike should liquidate our stock holdings into cash position and vote Opposition to ensure the market crash thus allowing us to go bottom fishing...?
Brilliant idea from CSL ...

Remnant 888 said...

So now, we have more reasons to standby our cash to catch the bottom as the Index plunges...

It seems funny as I read CSL's comment on the market plunging hundred of points when BN loses.
It's like saying: if you vote opposition-> market crashes.

Corollary.
So we investors or traders alike should liquidate our stock holdings into cash position and vote Opposition to ensure the market crash thus allowing us to go bottom fishing...?
Brilliant idea from CSL ...

solomon said...

Still digesting why lately so many doctorate politician are making negative statement or issue do or die statement.....
We can see Dr C, Dr L, Dr K, Dr M....

Clearly, we all want a result oriented politician rather than statement making one....

Fact aside, I like Theresa Kok CNY clips, real innovative...

Unknown said...

My take is ...a Pakatan victory will lead to much more positive changes in economic policy of Malaysia that drives business growth, promotes genuine entrepreneurship and this will lead to increases earnings per share of companies listed in BURSA. As such the market will go UP if Pakatan comes to power.

2020 said...

WoW,

An interesting topic - so 1st time commenting here...

Well, here goes...
As far as my biased understanding of the market, i believe the Institutional player plays a major role - be it local or otherwise...

So,
Are we implying Soi Leck is a major fund manager? If not, then his comment carries no bearing in the market - it may have influence else where...

Now, these fund manager by right have set of rules which governs them and no i dont mean rules as in law of governance, wakaka ... else, how do one explains justification for supporting fgv - it makes no comercial sense, wakaka ...

Now, the rules that i am reffering is the the law of the jungle, wakaka... The market jungle... So, the Institutions are genetically big which means they are not as nimble as say for example an ikan bilis like me.... That mean the position to be taken requires due considerations and time to execute and vice versa and in this consideration, time is a factor....

The moment institution player takes a position to buy, it will signal accumulation and vice-versa and the factor here which they can not run away is "time" - vice versa..
The chuaH can instruct them fund manager to buy/sell??
Now my Q to the floor here is, do any one of you detect any signs of accumulation or distribution in the market as of now??

Hmmm, then someone must be talking cock (sure hope its not me, wakaka)

Note: try sell/buy a big block of shares... Its not that easy as that famous term "willing seller & willing buyer" tagline.

rdgs/2020

hahwan lai said...

Chua "DVD" Soi Lek may not be much of a stock market expert but he sure is a shiok target expert. As to whether he is a man of his word, I'll say he is a man of his dick more than anything else.

Kingsmen said...

The proponents of the 2 party system for msia did not originates from their self-owned bright command center. Instead it is a copycat. Depending on what their camouflage lineage maybe each propose and argues to their best self intentions.

Today America where this 2party system ideology originates and propagates is split into the right and the left. The left roo for more govt while the right roo for more private interests. The right sees govt power as the problem and the left sees private interests as the root of the problem.

As such the very same group of people shuffle their location depending of how their perceive this ideology. The public could only marvel at the transformation of their character and morality. A good man becomes evil and evil man becomes good depending on the location of his activities.

Today even in msia we have a govt which is beholden to private enterprise. Oil & gas, power, agribiz, infras, developments, natural resources, ports, tolls, transportation....they shut the protests down...both robber barons and govt are alike. Look at the few property barons that are monoplizing an island in msia.

Americans Right blames the left and left blames the right. The two sides are locked in ideological combat while power grows in the private and public sectors, but not the benevolent power that the two ideologies suppose. Instead, a two-headed power monster has risen.

This is what a two party system has created in the western world. And our copycats are propagating this idea to the insouciant rakyat.

In the end everyone will be designated from Free people to EXPLOITED SERFs.

hishamh said...

@unknown 1.17pm

You can't post graphs in a blog comment, so I came up with this instead.

The data is from the latest IMF World Economic Outlook database, all in current market US dollars.

By rights, since market exchange rates don't truly reflect domestic purchasing power you should use PPP-corrected exchange rates, but there's no consensus on the methodology. I prefer using the Penn World Tables for international comparisons, but the IMF data was good enough and on hand.

For ease of interpretation, I'd suggest looking at the chart on ratios (MY GDP per capita as a ratio to other countries). Almost all of the loss of ground for Malaysia's GDP per capita relative to the three other countries mentioned by Mr Koon occurred in the mid-1980s (specifically the 1986-87 recession).

The ratios have been relatively stable since then - implying that Malaysia's GDP per capita growth has been at least on par with these countries. In Taiwan's case, we've actually been catching up since 1998.

So if there has been economic mismanagement, it must have been a regional disease.

One more thing:

The point about Selangor, Penang, Kedah and Kelantan getting about half of Malaysia's inward investment is true, but also irrelevant since that's approximately the same ratio of investment these states have gotten before PR took over. Honestly, Kelantan shouldn't even be mentioned because the rate of investment there is miniscule.

Chua's statement is and was ridiculous, but from my perspective the rebuttal is not much better.

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Ciki said...

I concur with you Dali. In the event PKR wins, the KLCI will react initially but in the medium to long term, it will go to new heights.

The current BN coalition is stale and is getting worst, and this is proven by the dismal governance of the country and its assets plus the fact that FDI is at its lowest. They can go Iskandar this and that, but the big picture shows that our neighbours are doing much, much better with FDI and ours is in fact on the decline.

CSL knows nuts about anything but to carry UMNO's balls. That is how low he is regarded these days. He will also be the one that ultimately bring MCA to its knees.

To me, it is quite simple. Whatever the BN says, you know its the opposite and that they are really worried. Why else does one go around predicting chaos and financial meltdown? Surely the only thing that he and the rest of the BN ministers are thinking of is their own well-being, their own bank accounts and their so-called legacy.

Just as Dr M said that unbridled internet freedom is harmful (The Sun, 18th Feb 2013, pg.3), I'd rather correct the Tun by saying that unbridled BN rule will ruin the country and do more harm. Perhaps what the Tun meant was it will do harm to him and his family's interests.

Deng-ded! said...

Yah... and if PR wins, investors in Iskandar will pull-out overnite and the whole region will go belly up.

Naaa... me don't thinks so.

Anon118 said...

@hishamh

Hi there.
Firstly, I'd wanna say that I've read some of your comments (from previous blog comments, etc) and have respect of your views.

I'm saying this because what I'm about to write is to seek clarity. There's no malice or ill intentions, I'm trying to write objectively and get close to verifiable facts & data. I assume your data is accurate & objective, and I trust your figures.

I think ratios can be confusing and I'm a simple person. I prefer to look at absolute figures and comment on it.

Referring to your chart (GDP per capita- Current USD), it shows that Singapore's GDP per capita is at approximately USD60k and Malaysia is at approx. USD10k in 2010, correct?

If we look at the gaps between these countries and Malaysia, we can only see the gaps widened in 2010 in comparison to 1980.

Basically since 1980, it is absolutely certain that our difference (variances) between these countries have been below USD10k. Regardless of "recession", "boom", "bust", etc... The absolute figures speak for itself.

Each different country has it's own problems, issues. Thus it is very subjective to quantify these problems and issues. There are no excuses and "rationale".
We cannot say "Oh, my ankle is twisted so I'm not an Olympic Gold Medallist" or "Oh, it was raining" or "Oh, we have too many injuries", etc. I think you get my drift.

So, let's look at the numbers and be objective.

Every country mentioned has gone above & beyond the USD10k and Malaysia is crawling to sustain at that level. Singapore was the first passing that mark in 1990. The other 2 countries passed the mark for the first time by 1994. We are now at that mark more than 20 years later.

I think based on the chart, it is clearly shown that it took us more than 20 years to get at the same level. The question is, 20 years later, how much should the gap be?

So, how is it that ""In Taiwan's case, we've actually been catching up since 1998"?

I mean since 1980 the gap was miniscule, and in 2010, I can actually fit my whole middle finger between those 2 lines.

Further, I'm sure all of us would prefer to be the leader, wouldn't we? I mean, instead of "catching up", why can't it be "we are now leading by"?

Why are we complacent & happy with "catching up"? "Catching up" is a subjective term. If we're talking about "catching up", then we should talk about the leading front.

I think Korea & Taiwan are very close to each other, but I don't think we're "catching up" with Singapore. In fact, the gaps between Singapore and "Korea & Taiwan" seemed to have widened.

If there's any "cathing up", it would be that Korea & Taiwan is trying to catch up.

"So if there has been economic mismanagement, it must have been a regional disease"

If it's a regional disease, I think I'd prefer us to be at the level Singapore is at, currently. At least we're the leaders, and not "catching up"

I think I like the slogan "Malaysia Boleh!" and not "Malaysia Ketch-up!"

Anon118 said...

And to Dali- wish there are a few more of you & Mr. Koon around... :)

hishamh said...

@anon118,

And a good day to you too.

The reason why ratios are preferred is that a dollar in 2010 is not the same thing as a dollar in 1980, or even in 2000. This is due to inflation - widening absolute differences could be due simply to progressively lower purchasing power over time.

If you really want to compare absolute values, then you have to deflate the GDP per capita numbers with a price index that measures inflation across time. I could do that, but we're talking about 5 different price series here (4 countries + US) which is more effort than its worth when ratios convey the very same information just as precisely, since we're comparing dollar values at each point in time rather than across it.

As for reasons for the gaps, I think the biggest reason is we are natural resource "rich" and those other three countries are not. That causes two problems for Malaysia - correlation with global commodity prices, and under-investment in higher value added manufacturing (the so-called Dutch Disease). Nor are we alone in this - most resource-rich economies tend to do poorly either in terms of GDP per capita, or in inequality.

We started the 1980s as a primarily agrarian and mining economy, which did pretty well in the high inflationary 1970s. But commodity prices went south in the 1980s.

There's also the coordinated forex intervention in major currencies that occurred after the Plaza Accord of 1985 to reduce the value of the USD, which hit Malaysia's commodity terms of trade (i.e. export receipts). As a result, we lost much more ground comparatively in the 1980s recessions than was lost in 1997-98 even though the latter recession was deeper in domestic terms. By 1997, manufacturing was a much bigger proportion of the economy.

HTH

Anon118 said...

Maybe I wasn't not clear enough.
Ratio is preferred by you, not me.

I reiterate, there are many reasons & excusese. Many theories & economic terms that we can use.
But again, like I said, maybe I wasn't clear enough. Without the need for rationalisation, let's try to simplify this and state the facts;

1) GDP per capita of the 4 countries were below USD10k, in the 1980's

2) Every country mentioned has gone above & beyond the USD10k. Singapore was the first passing that mark in 1990. The other 2 countries passed the mark for the first time by 1994. We are now at that mark more than 20 years later.

I believe those 2 points mentioned are facts. Based on the 2 points above, my opinion is;

a) We took more than 20 years to achieve what the other countries have done so.

b) For being the country with more natural resources and human capital, we should be doing much better than the other 3 countries.
But yet we are lagging behind with issues such as brain drain, increasing national debt, etc.
We're even lagging behind in terms of football.

Anyway, this "debate" can be endless. I've stated my opinion & shall not reply anymore.

Thanks :)

hishamh said...

anon

Perhaps I didn't explain myself well either. Although I don't want to continue to someone who's not going to reply, some issues need clarification.

1. While the "facts" are correct as you state, the basis is totally wrong. You CANNOT compare the absolute values in the dataset I uploaded, because they are NOT corrected for inflation or purchasing power. Under those conditions, you are conducting an apples and oranges comparison.

Hence my preference for using the ratio, which is value agnostic.

If you STILL want to compare absolute values, then you should go to a proper source, like the Penn World Tables:

https://pwt.sas.upenn.edu/php_site/pwt_index.php

This will give you both PPP corrected and uncorrected GDP, GDP per capita, and GDP per worker data going back to the 1950s, for most countries in the world. I suggest using series RGDPCH (chain-linked real GDP per capita).

Also to be consistent, it is not enough to say below USD10K, and then above USD10k. Let's say instead the time taken to go from USD5k to USD10k, which using RGDPCH gives:

Korea - 11 years (1978-1989)
Malaysia - 15 years (1989-2004)
Singapore - 8 years (1966-1974)
Taiwan - 10 years (1976-1986)

Note the dates.

However, these kind of comparisons don't provide much guidance on dynamics - are we or are we not moving in the right direction?

Secondly:

"For being the country with more natural resources and human capital, we should be doing much better than the other 3 countries."

This is false. The empirical evidence shows that countries with higher natural resource endowments invariably experience slower long term growth and lower GDP per capita. It's also arguable that we have more human capital - Taiwan has a slightly smaller population but Korea's is almost twice as big. We only have a size advantage over Singapore. But the proportion of Malaysia's population under 20 is orders of magnitudes larger than any of these 3 countries.

Last comment (I promise!) - did you know Singapore's brain drain over the last two decades is both larger and qualitatively worse than ours? Strange but true.