Free the bourse, please!

  • The Bowerbird Writes
  • Monday, 07 Jan 2019

YOU know the market is booming when taxi drivers are telling you which stocks to buy. Or when the coffee shop talk is all about the stock market.

During the giddy 1990s, share prices fluctuated like a yo-yo, with counters sometimes moving up or down a few ringgit in the course of one day. People were spending a lot of time at the offices of brokerages “playing the market”.

Well, it happened in most major bourses the world over any way. In the United States, the 1980s and 1990s were times of market gains, investors making money, traders laughing their way to the banks and the little people benefiting from the cascading wealth that defined the era.

Perhaps the Gordon Gekko character (played with devilish exactitude by Michael Douglas) in the 1987 film Wall Street represented the era. He famously said “greed is good”.

Call him evil or the demonic face of the market, but he deserved attention. Even business schools are using him as a case study, apart from people citing his “leadership quotes”.

Gekko was a psychopath with finesse – a believable crook who manipulated the market and was single-handedly capable of bringing the market to its knees.

Gekko has become part of the lexicon in popular culture and is associated with unrestrained greed and hubris. He gave investors and speculators a bad name. When the 2007-2008 financial crisis hit the United States, the Gordon Gekko mentality among free market players was blamed.

When Alan Greenspan, the then-Federal Reserve Board chairman of the United States, uttered the phrase “irrational exuberance” in his 1996 speech, the market reacted rather feverishly.

His exact words were: “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions ...?”

In laymen’s words, he was worried about an asset bubble driven by greed. Investors’ enthusiasm was driving assets prices up to the level that was not supported by the fundamentals. When the market was good, anything went. Nobody really cared.

But back in the 1990s, the market was driven by speculation and the tendencies to hype and escalate stock prices for short-term gains. In many markets around the world, the bourses have become gambling dens.

The bubble did burst and investors engaged in panic selling. The entire market was penalised as well. It resulted in recessions or worse.

In Malaysia, we have seen how stock prices breached unimaginable prices back in the 1990s. Imagine a joss stick maker being priced at more than RM100 per share.

Just sign an MoU (memorandum of understanding) and the shares of the particular company will jump sky high.

Even corporate chieftains following the Prime Minister on a business trip abroad would be pleased to see the shares of their companies climbing.

On the top of that, there were known cabals in cohorts with share owners who made money by pushing up prices at their own whims. Initial public offerings (IPOs) seldom saw a premium of less than RM3.

For the little people, “contra trading” was in, which involved buying and selling the same shares without having to pay for them.

They were taking advantage of the three-day “contra period” offered by brokerages. Within that period, the investor will be paid any profits made from the arrangement. If the price of the stock is lower, the investor will have to pay the difference.

The brokerages were alive. People were happy. But companies built sand castles out of their limited assets. Funda­mentals were ignored.

In the name of expansion, the corporate bosses accumulated debts in the hope of amassing more value and wealth. Exactly the Gordon Gekko syndrome.

Then the financial crisis of 1997-98 hit. They were totally unprepared. Many were not spared.

The Securities Commission formulated new rules in the aftermath of the crisis. Companies are monitored with a fine-tooth comb. There are a lot more restrictions in place than ever before.

Companies are expected to practise good governance and enhance integrity. Anything that signals impropriety will not be tolerated. An unusual movement in a stock price may trigger an inquiry from the relevant regulatory bodies.

We are all for a better stock exchange, one that will safeguard the interests of all shareholders for the sake of trust and a healthy market.

But do we need to shackle the market with the yoke of unnecessary rules and regulations created some two decades ago? Should we live with the legacy of a stifled market just because of some bad apples back then?

I reckon it is time to relook the market objectively and smartly. We have to move beyond the fears of yesteryears.

We have the sets of rules to monitor without strangling and to regulate without killing the spirit of a true free market that created the bourses in the first place.

Let not the past haunt or cocoon us until we become zombie-like investors that fear making a ringgit or two.

The least the present government could do is to make the little investors happy again! It might even boost the current listless economy!

Johan Jaafar was a journalist, editor and for some years chairman of a media company, and is passionate about all things literature and the arts. The views expressed here are entirely his own.

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