STAR: Are you equally upbeat onthe KLSE, KC?
Kok: Personally, I am very bullish.There are actually a lot of similaritiesbetween this year and 1993,although of course, we may not beable to get the kind of PER rating weused to have in 1993. Just to recap,the index doubled in 1993 from 634points to 1275 points. Of course,that was basically powered by thefact that US funds were coming toAsia. There are actually some similaritiesto 1993 that I want to pointout.
We have a similar problem likeover-capacity, not only Malaysia butglobally, as well as a high unemploymentproblem in both 1993 andthe current situation. We know thatthe Western economies have beenable to adjust pretty well. Whenthere is over-capacity, they will shutdown the factories and when theyare overstaffed, they will sack people.This adjusting factor is actuallyvery good for the stock market. Youcan see that in the US markets. Forexample, Nasdaq is actually upabout 23% this year. So we are actuallyseeing that come along, plus theincrease in risk appetite globally.With the bond yields coming off,people are looking for alternativeinvestments. So it is a very strongcase for equities this year. Generally,I think Malaysia will receive thespillover effect.
The other thing is to look at thedomestic situation where we have alot of excess liquidity in the system.Bank Negara has been mopping upliquidity and, as of May, there isabout RM80bil of excess liquiditythat has been mopped up (this isactually costing them a lot ofmoney). The excess liquidity is actually18% higher for the first fivemonths.
The other thing is that we haveseen a lot of M&A activities this year.We started off with Sapura andCrest, big plantation mergers, theTelekom-Celcom merger has beencompleted and now possibly a secondround of bank mergers. Allthese basically get people excited,and they are looking for new ideasto buy, so I think the momentumwould still carry on. In addition, wewould probably see the generalelection in Q1 of next year.
Star: Siang Chin, do you sharethese views?
Lee: I think the uptrend wouldcontinue, obviously with breathersin between and currently, I see thatwe are going to have a breather. Aswas mentioned earlier, the Q1 earningsfor a lot of the companies camein below forecast, so analysts downgradedthe earnings growth. Thisyear, I think a lot of people are lookingat earnings growth of not morethan 10% and are a bit more optimisticnext year, with a forecast of11% to 12% growth, which meansthat valuations would not be thathigh.
I don't believe that the conditionsof 1993 would return because of foreignparticipation. In 1993, theAmericans discovered Asia andemerging markets led by MorganStanley and Barton Biggs. But nowadays,foreign participation in ourmarket is at a very low level –Malaysia's weighting on the MSCIAsia Pacific is 4.3%. It used to bemuch higher, double that number.We have markets like South Koreaat 15.5%, China is currently at 4%which is almost equal to ours, and Ithink China is going to have moreand more large IPOs coming out.From South Korea, you are going tohave very big companies with wellknownworld brands that wouldattract a lot of money. EvenSingapore has a higher weightingthan us at 6%.
For us, it is not just PER and thelike. It is more of how to get higherweightings in the indices and therefore,attract more foreign money. Ithink the mergers of certain plantationcompanies and rationalisationof government holdings are important.I take the view that if we havea larger free float that are not in governmenthands, then our weightingin the indices based on free floatwould increase further. So at thecurrent low level of foreign participation,any shift of their weightingto Malaysia would definitely makean impact. I don't think the foreignhouses are negative on Malaysia. It'sjust that they find the valuations –yes, they are attractive – but othercountries are equally or even moreattractive. So, we have to contendwith that.
Also, I think it was a good idea forthe Securities Commission to comeout with the ringgit matching proposal.We obviously would like tolook at the details. One of the problemsis the economics of running afund management company in aone-market fund managemententerprise. Most of them have set upoffices in Singapore to manageAsean money, so it makes more economicsense for them to manage aregional fund rather than to run aone-country fund.
Obviously, as the year goes on, wewill be looking at the political transition,although it is very clear cut,based on last weekend's Umno generalassembly. But on the businessside, we have 4 more months beforethe new PM takes over and althoughI don't expect many changes in policy,a lot of people could still bewaiting. So, I think the marketwould go up but carefully. I thinkretail investors hopefully will comeback to the market as they are moresubdued this time than before.
Kok: I want to clarify one point.When I talked about 1993, I didn'tmean that we would see the samekind of foreign inflow now as in1993. The world has changed and Ithink Malaysia – as you can see fromthe MSCI weighting – is not animportant market. In the old days,people used to talk about Malaysia,Singapore and Thailand as three keySouth East Asian markets. Now,people don't talk about these threemarkets anymore, they talk aboutSouth Korea, Taiwan and China –these are the three key marketsnow. However, I think there is a fundamentalshift in the local fundmanagement industry. Ten yearsago, local fund managers and unittrusts only manage a little bit ofmoney other than PNB.
Today, you can check with Aminhow much money is being managedby the domestic fund managers – itis huge. The style of the domesticand international fund managers isvery different. For internationalfund managers, if they want to shiftRM20bil into Malaysia, they coulddo it probably over a month whilethe Malaysian fund managerswould do it over a much longer period,so you might not see the impactof this money being put to work.What I am saying here is that whenyou have foreigners suddenly gettingso excited in the market, andthe stock market is what I could call,a marginal pricing indicator, sowhen foreign fund managers comein, the local fund managers areforced to chase up stocks as well.This would create an impact.
Rafie: I share everybody's view. Itis difficult to be a contrarian and Ihave no reason to be one. I think themarket would continue its run-up.The speed and pace of it would obviouslydepend on several factors –one of the key factors would obviouslybe earnings which are andprobably have been downgraded. Ithink next year's earnings would bebetter. In that sense, it would drivethe market upwards. On the otherside, we can't ignore the impact ofthe Dow. Much as we want to argueand believe that we are decoupled,we are to a large extent still correlatedto the Dow performance. If weexpect the Dow to improve in thenext 12 months, that would be positivefor our market.
Obviously, we have got the electioncoming up. Historically, itproved to be a positive factor for themarket in the months precedingand post the election. Obviously, itdepends on the level of victory forBarisan. The larger the victory, thelarger the impact – obviously. Andin this case, I expect a larger impacton the market based on my expectationof a larger victory for Barisan inthe next election.
●Transcribed by LIEW LAI JING