Monday, March 05, 2007

Credibility Gap II

I've released a media statement last Thursday, essentially blaming the Prime Minister, Datuk Seri Abdullah Ahmad Badawi, not for the fall in the stock market, but for causing thousands of retail investors to be 'burnt' during the Chinese New Year period. You can check out my statement here, or as reported in Malaysiakini here or Oriental Daily here.
The Prime Minister, Datuk Seri Abdullah Ahmad Badawi made a bold prediction that the Kuala Lumpur Composite Index (KLCI) might hit record highs of 1,350 points and strongly encouraged Malaysian retail investors to “push hard” to achieve it on the 2nd day of the Chinese New Year.

...with the confidence and encouragement publicly expressed by the Prime Minister himself, the “retail participation was back in earnest” from the first day of trading after the Chinese New Year break.

...the KLCI rose 1.3 percent to 1,278.22 points on a record high volume of 4.7 billion shares traded. The volume was [a whopping] 32.8% higher than the previous high of 3.54 billion shares recorded only the week before. The transaction volume hit another record of 4.78 billion shares on Thursday.

The Star reported that “penny stocks and low-priced warrants saw brisk trading – an indication of retail participation – with the top 10 most active counters clocking a combined volume of more than one billion shares”.
The rest, we know is history. Within 3 days, retail investors who participated in earnest, particularly those with margin accounts or those speculating on contra gains, were forced to sell their stocks with huge losses - contributing to a RM100 billion loss in market capitalisation last week.

What was however more interesting is the continued attempts by the Prime Minister to shore up confidence in the market, and his continued failure to do so.

After 2 days of record-breaking fall for the KLCI of more than 6% on Tuesday and Wednesday last week, government officials rushed to make statements to "calm" investor fears with regards to the stock market.

"Malaysia’s economy remains robust and there is no cause for anyone to worry about the dip in the KL Composite Index," said Second Finance Minister Tan Sri Nor Mohamed Yakcob on Wednesday. As a result, the market responded by dropping another 16.23 points (1.37%) on Thursday.

And on Thursday, the Prime Minister himself asked Malaysians to "have faith in the KLSE".
Malaysians should have confidence and be prepared to invest in the KLSE to attract bigger foreign participation.

"When Malaysians show their confidence and their preparedness to invest in their own stock market or in their own country, this will give a signal to investors to come in bigger numbers to Malaysia."
I won't dwell into such skewed rationale for investing in our stock market here. What is of note is that the investors responded to his statement with continued selling, causing the KLCI to drop by another 17.05 points (1.46%) on Friday.

This morning as at 9.25am, the KLCI is down 29.7 points.

There is hence a strong case for our Prime Minister to stop giving comments on the Malaysian stock market for the more he talks about it, the worse it appears to be.

To quote OSK Securities research chief Kenny Yee, “our only concern is that the sharp fall would have an effect on retail investors. Some of them entered the market just last week and it is not good to be hit like this.”

In Pak Lah's eagerness to convince the electorate that the economy is extremely rosy in a pre-election year, he has gone overboard causing untold damage to the average investors who are already hit by significantly higher cost of living such as up to 60% rise in toll rates.

Is this a case of the Prime Minister losing all credibility with the retail investors? Did he almost single-handed caused these investors to lose total confidence in the local stock market?

14 comments:

Anonymous said...

Tony,

But seriously, I think the investors should know better when they go into the share market. Lesson 101 of Finance - when going into the market, caveat emptor. The monkey's on your back.

And to quote you, they should know better and "Go in with their eyes wide open"

Anonymous said...

LESSON 102 OF fINANCE

A fool and his money is soon parted

The fools here refere to the investors who believe certain person have the power to split the seas but do not read financial reports or CNN or Bloomberg

jien sing said...

RM 100 billion / 3.8

= USD 26.32 billion

Equivalent to:

26.32 / 3.5 = 7.52 KLIA airports

100 bil / 400 mil = 250 'new' Istana Negara(s)

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.
.
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A Voice said...

Show me any Government not happy with a bullish market?

Show me a situation where analyst wud say sell then words like underweight, neutral, overbought, etc?

Show me a remiser who thinks on a sell side then continually "tell you to buy this and buy that"?

This is no issue. But with Dol alrady having pathetic image problem. Everything just get conveniently piled up on him.

A Voice said...

SO Tony, when are you going to get tagging my fellow orang batu pahatan from koris.

Refer to my blog on tagging me tagging you to know the game.

Tony P said...

Hi,

I think as the leader of this country, he bears a certain responsibility for the massive entry of retail investors just after Chinese New Year. Volume went up by 33% compared to the record set the week before.

I'm in the market, and I certainly bear responsibility for my own losses. However, the same could not be said of the uncles and aunties, the pak ciks and mak ciks who went into the market with Pak Lah's reckless encouragement.

At the point of writing, KLCI has dropped by more than 60 pts today!

"A Voice", it's ok for Pak Lah to be trumpeting the economy. But it's another thing altogether to make irresponsible stock market predictions. There's a reason why a license is required to give stock tips, and even then with plenty of legal disclaimers. I didn't read any disclaimers in Pak Lah's statements.

Tony ;)

Anonymous said...

Maybe its the fault of the Chinese for anticipating this year of the golden pig will reap much fortune!
I wonder Lillian Too suggested all Chinese to go into stock market after CNY?

hasilox said...

I say, "Go, go buy stocks now. It will reach 2000 points soon".
Anyone heeded my 'advice' is a fool.

A company's CEO says, "Go, go buy my stock now. It will reach RMxx.xx soon".
This might be a crime (no?).

What is the difference if the PM calls for people to buy 4D by emphasizing the top-prize value and the possible payout? The PM must seriously consider sacking the spin doctors.

Anonymous said...

leaderships without
credibility and
ability,
no track records...ever since founded ...
(but holding majority votes' kampong folks doesn't care,
ingore and happy living with BN...)
In this land, middle-classes have been cooked.

kafkalee said...

i agree with Tony that as a political figure, PM should not comment bluntly on the index level. not to an extend of giving the nice 1350 number, and not on CNY (when everyone at home reading newspapers).. :) it is totally irresponsible.
btw, rumour says he failed his Statistics paper ...:p

Silent Me Not AUthor 1 said...

Tony,

I think, apart from the last statement in your press release, everything else is rather political (non objective).

" This is because there are many other factors which affect the movement of stock market prices, many of which are unrelated to the basic state of our economy. Hence, BN's attempts to equate the high stock prices to a “booming” economy is at best misleading, at worst an outright deception."

unfortunately, it's our citizens that fail to see that coming. I say, DAP should organise economics classes instead of writing up political press statements

skilgannon1066 said...

Did the PM put a time frame on when the KLCI would hit 1350? Or was it more of a general comment based on the perception that the fundamentals of the Msian economy are sound?

Stock market corrections are part and parcel of the free market. Get used to it. If you can't stomach the ups and downs, go for fixed-income stuff like corporate and govt bonds.

Incidentally, analysts have been warning about the dangers of the yen carry trade for many months now. But the "mom and pop" investors who rely more on tips than on sound analysis rush in without due regard to fundamentals. And putting the blame for this on the PM is just seeking a scapegoat for these people's greed or folly!

Brian Fong said...

hi tony, since you are a techie - would appreciate if you could change the DAP bulletin interface to make it more reader friendly.

it is difficult and distracting to read from a landscape type of format...

tks

Silent Me Not AUthor 1 said...

I am hoping to see Tony's response on the idea of setting up economic classes. :) wonder whether Malaysians would care...