Unrestricted thoughts

  • Markets
  • Friday, 20 Mar 2020

Trading curbs and tweaks to short selling rules may help slow the descent but the market will find a way to any bottom. It may just take longer.

On Thursday morning there was a statement many did not expect to see.

The Association of Stockbroking Companies of Malaysia (ASCM) chairman Datuk Azman Manaf issued a call for the trading of shares on Bursa Malaysia to be halted immediately.

His rationale is that since there is a movement control order, the suspension would be a defensive measure to protect the stockmarket from suffering severe damage that could take a decade to heal.

He points out that the Philippines stock exchange too had halted trading on Tuesday after the turmoil in capital and oil markets continued unabated.

The reaction to that statement was swift and strong. In a rare joint statement by both the Securities Commission and Bursa Malaysia, they, in response, said while the markets are volatile, there is a need to maintain continuous trading to allow investors to manage their risks and opportunities during this period.

In the afternoon, ASCM distanced itself from the earlier statement, saying that was the opinion of the chairman and not the stand of the association.

Like what the Philippines market found out recently, shutting down the market did not achieve anything. The markets tanked after it opened and the question is what is the immediate damage to the investors in that stock market.

All stock markets have been hurt terribly by the Covid-19 outbreak and the sharp drop in Malaysian equities that has wiped out around RM200bil in market capitalisation has certainly caused anxiety among investors and traders.

The fall of the market, being so severe and drastic, brings up comparison between the current Covid-19 crisis and that of the Asian Financial Crisis (AFC).

The difference between then and now is the AFC was a regional crisis. This is a global catastrophe.

But implementing a suspension of trading would mean Malaysia did not learn from the worst crisis that has devoured the stock exchange here.

Stocks during the AFC collapsed to the 260-point range from a height of where the current market is currently trading at. Along the way, the government and market authorities stopped short-selling, banned the CLOB market in Singapore and the nail in the perception coffin was capital controls.

We heard foreign investors vowing never to invest in Malaysia again after their money was trapped in Malaysia. But the important lesson that everyone learnt along the way was that no matter what regulators and the government did, the market will eventually find its base.

Letting market forces find a level is the most rationale thing to do. Disrupting the process of market discovery will only hurt the market in the long run.

Trading curbs and tweaks to short selling rules may help slow the descent but the market will find a way to any bottom. It may just take longer.

In the end, investors will find value in stocks to be compelling and that will be the greenshoots of any long term rebound.

The only question is how long until we get there.

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