THE 10 market enhancement measures announced by acting Prime Minister and Finance Minister Datuk Seri Abdullah Ahmad Badawi yesterday are welcome news to a deflated stock market, dragged down by concerns over war.
The measures demonstrate once again the government's strong commitment to the development of Malaysia's capital market and acknowledgment of the role it plays in the development of the economy.
The measures are also very much in tune with the call for a “change in the mindset” that Pak Lah (as Abdullah is fondly addressed) highlighted in his now famous policy speech at the Oxbridge Society last week. Many of the measures involved cutting red tape and bureaucracy so that corporate proposals are approved as speedily as possible.
Among the 10 measures, a few will have immediate beneficial impact on the market. These include the reduction in stamp duty, capped at RM200 per contract, which will see the government forgoing RM60mil in revenue a year. The standardisation of board lots into 100 shares will also enhance participation and liquidity.
Others, such as reduction in processing time for initial public offerings (IPOs), are for the medium term. Yet some are aimed at enhancing corporate governance while some provide financial incentive to the management of large companies, particularly government-linked corporations, if they show exemplar results.
Given that world stock markets and investors are so preoccupied with the impending US-led war against Iraq, it's unlikely that these market enhancement measures will have any appreciable impact on the KLSE in the immediate term.
But to appreciate the intent of these government initiatives, one has to view them against the broad economic and corporate landscape.
Malaysia, like most countries, is going through tough and uncertain times. The country has yet to fully recover from the Asian financial crisis and must now face the consequences of a war against Iraq.
Concern over the coming war is already impacting the economy and the share market; so, a prolonged war can only make the situation worse. Fortunately, Malaysia has plenty of oil and gas to cushion against the worst effects of war.
But there is no room for complacency. Therefore, the government is working on a stimulus package, to be announced later this month, to give the economy a boost. The plan includes pre-emptive measures in the event of a prolonged war.
There are some who argue that it does not matter if the KLSE indices sink lower and lower. They say the KLSE does not represent the real economy.
This is nonsense. The KLSE does not represent the entire Malaysian economy, but it does represent a huge segment.
Increase in share values raises one's assets and wealth as much as a rise in house prices increases the wealth of home owners. The only difference is that share price movements (therefore, the wealth of share investors) are more volatile. That's the nature of the beast.
When it comes to the capital and equity markets, it's the duty of the government to ensure that these markets are developed and operated efficiently and that they provide healthy avenues for investment for its citizens and foreigners who wish to invest here.
Hence, as soon as the local economy was coming out of the Asian financial crisis, the government began dismantling the various foreign exchange measures, which the market regarded as negatives to investor confidence, but which were necessary then to stabilise the economy.
Last month, a journalist for a prestigious British investment magazine was surprised when I told him that there are now no restrictions on foreigners buying or selling Malaysian shares. He thought there was still an exit tax.
Recently, at the government's encouragement, three investment agencies contributed RM10bil to form ValueCap Sdn Bhd, whose aim is to give liquidity and leadership to the market by investing in beaten down quality stocks.
The 10 measures announced by Pak Lah yesterday form part of an ongoing government policy of providing timely measures and incentives to grow the capital market.
There are three measures I'd like to highlight for comment.
The standardisation of lots of 100 units is good. Let's hope the KLSE would soon allow any number of shares to be traded on the exchange to completely eliminate the problem of odd-lots.
The government also wants the stockbroking industry to work out a minimum commission rate for brokers and remisiers and an effective policing mechanism to discourage unhealthy undercutting.
The aim is laudable, but this should not lead to complacency among industry intermediaries. When business gets better, this minimum commission should be reviewed to encourage healthy competition among brokers and remisiers.
The government is introducing an incentive scheme for management of government-linked companies. Those managers who perform well against pre-agreed and transparent key performance indicators would be rewarded with share options, while those who fail consistently would be disciplined, including getting the sack.
Many of the professionals now at the helm of government-linked corporations are doing a good job, turning these debt and scandal-ridden corporations back to profitability. They certainly deserve to be rewarded, provided the rewards are not so generous as to be obscene.
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