Market


  • BNM announced non-residents are freely allowed to convert and repatriate profits arising from contra transactions is encouraging speculation in KLSE, imprudent and making mockery of capital control. 7 Jan 99

  • KLSE is again defying gravity having a bull run in the mist of recession.
    1. Every recession has several distinct phases. At first there is disbelief, characterised by the view that nothing can possibly dislodge the economy from its healthy growth path. Then there is denial: even as the gloomy evidence accumulates, people look desperately for glimmers of light. Finally there is blind panic, as described in this article . The current market sentiments is base on future earning, NAV, possible merger, restructuring plan which is not dissimilar to sentiment in 1996, which can be described as denial.
    2. Analysts have abandoned the traditional ratio of PE either it is negative or have ballooned to stratosphere .
    3. Net Assets Value (NAV), the current darling of analysts. As most if not all of NAV was valued at the peak; has anyone question whether the NAV is reflecting the actual worth or the value the company directors like to believe it is worth.
    4. In the past three months, whenever there is a gain in regional, TSE, LSE or NYSE stock market, KLSE follows, claiming positive sentiments and indication. However, KLSE is insulated from any drop claiming Ringgit is non convertible or no selling by foreigners. Which like George Orwell’s novel ‘At one time, two legs bad, four legs good. At other time, four legs good, two legs better’.
    5. Price movement in KLSE is insulated from economical or statistical data eg GDP growth, etc.
    6. The current housing campaign is effectively transferring business risks (debt) from developers (elite few) to house buyers (masses). Without serious price reduction in house price back to 1992 level will restrict more consumers from spending.
    7. Merger, takeover and restructuring of an ailing company is a positive action. However, it is still not able to justify or account for KLSE market capitalisation of more than 2 to 3 times of GDP.
    Price correction at KLSE is inevitable and will be heavy. 15th. Dec 98

  • Market Capitalisation Is To Fall Further
    According to BNM; As at 24 August, the KLCI was at 317.20 points and market capitalisation was RM207 billion.
    Assuming the current ratio of wall street market capitalisation to US GDP is an acceptable one. Then KLSE's market capitalisation is expected to shrink by a further 50%. 27th. August 1998.

  • Current KLSE Observation
    Stock market is a reflection of states of economy and companies. By propping up stock market without fundamental changes is window dressing and is unsustainable. 22nd. August 98

  • Current KLSE Observation
    As the current KLSE has a small market capitalisation and is moved by liquidity. In the short term, the market will be highly volatile and downward trend will continue with more bad news is unveiled.
    A secondboard plc with shareholders fund of RM47.6 millions and turnover of RM41.1 millions managed to borrowed RM148.5 millions and incurred a loss of RM46.8 millions is ridicuous by any standards and making mockery of its bankers and research analysts. Unfortunately, many more plc are in similar situations and these companies must be allowed to go belly up. 5th. July 98

  • Current Property Observation
    Purchasing a new property is Malaysia is like purchasing a forward contract, as the property will only be delivered in 2 to 3 years times.
    During the upward trend, developers bid the price up by restricting supply. A typical tactic is 'pre-sold' to their friends and staffs. Hence, most if not all developers claim 80% sold before launch. As breakeven point for a typical development is between 50% to 65%, it is strange for developer to advertise the launch at all.
    Typical bank loan financed up to 90% of property value and allowed borrowers to service interest only before building is completed. Hence, to speculate in property is like margin trading. Paying only downpayment (usually 10%) and bank interest but make on the whole.
    Property development in Malaysia are high volume, high value, high profit margin, low barrier of entry and ease of project financing. Hence, most if not all plc were engaged in development.
    At the moment, some less popular developments which were completed more than a year ago had only about 50% occupancy. Of these, only 20% are owners occupied means more than half of property were bought for speculation. If the current high interest rate persists, property price will dropped by 50% to 70%.
    During upward trend, everyone were happy. However, in the downward trend, developers are left with unsold lots, buyers are holding devalued property and banks with dud loans.
    In the event that all commercial properties are sold and occupied, the occupants will faced an acute shortage of manpower to man these shops and offices. Either way, the property market is doomed for the next 2 to 3 years.
    The current practice favoured speculators either developer or individuals, and the biggest losers are the genuine house buyers. To protect genuine house buyers, we recommend new development can only be sold after completion.
    5th. July 98

  • Prof Paul Krugman's view of Wall Street

  • Early Warning To Wall Street
    The following news is an early warning to Wall Street is about to crash;
    -Nissan to suspend Friday production in the USA dued to mounting inventories. In a boom economy, car production should be at a peak except that the company is not well managed. FT 5th. June 98.
    -Despite Motorola expected severe loss, its shares rosed. Many analysts claim the rise in Wall Street is driven by technology stocks. FT 6th. June
    -Boeing, the US biggest exporter is cutting its highest profit margin product 747 production by 30%. The Times, 11th. June.
    If US economy is as bullish as some analysts like to be, the above should not be happening. Unfortunately, more similar signs are popping up. 6th. June 98

  • The ratio of GDP to KLSE Market Capitalisation II
    Assuming aggregate turnovers of all KLSE listed companies equal to GDP with an aggregate net profit of 10% of turnover and highest acceptable P/E ratio of 10. The KLSE market capitalisation of KLSE is equal to GDP. Therefore, currently KLSE is either highly overvalued or required serious re-engineering.
    1st. June 98

  • Wall Street Bubble Will Burst By End 1999 The current US condition is similar to Malaysia two to three years ago;
    - Full employment, hiring signs are everywhere. *Reported on 8th. June by The Times.
    - Wages rise faster that productivity.
    - Property price increase faster than inflation rate, setting new records and beyond the ability of average two income family.
    - Excessive Corporates and personals gearing.
    - Corporates profit is below expectation.
    - Merger and acquisition continue to boost stock prices.
    The crash will come when;
    - Worsening current account deficit. Long term full employment is unsustainable by current account deficit.
    - Stock price is beyond fundamentals. eg A Microsoft market cap is larger than all Asean stock markets combined.
    - Rise in interest rate.
    - Spontaneous computers triggered selling (Similar to Black October 1987).
    The higher Dow Jones Index climbed, the further the fall. For every 1 point above 7000, the fall is 2 points. eg If Dow Jones hit 9000 points, the index will drop 4000 points to 5000 points.
    After the great crash;
    - Foreign funds will withdraw from the US.
    - US dollars will depreciate against European currency and Japanese Yen.
    - The Fed will increase interest rate first and market liquidity later.
    - If G7 can't co-ordinate finance strategy, the World will be in depression.
    Hence, revival of Japanese economy and opening up of Japanese trade barriers is crucial to Malaysia recovery. 4th. May 98

  • Why Petrol Price Still Unchanged Worldwide petrol price is at the lowest since early 1970's which is sufficient to offset devualation of Ringgit. 7th. April 98

  • Dead cat bounce of KLSE The current economy doesn't warrant the huge increased of shares price last week. It is reported by 'Dow Jones Newswires' that; this is the work of foreign hedge funds and local investors for short term gain and most if not all prices were 'churned' up. It is regretable that; members of the Governments and local press are encouraging the trends. Without fundamental adjustment to the economy, this is creating another bigger unsustainable bubble and KLSE will remain as a speculative market. 8th. Feb 98

  • Is the worst of regional currency crisis is over? With events happening in Thailand and Korea in the last week, the worst of regional currency crisis is over except for Indonesia. Indonesian debt moratorium will dominate the forex sentiment next week. However, the Malaysian economy is entering a new phase; recession, high inflation rate and companies failure. Both the forex and stock market is going to stay volatile for the next six months.
    31st. Jan 98

  • A major obstacle preventing foreign funds from returning to the market is the threat of prosecution or accusation for economic sabotage when trying to cut losses by selling in the bear market. Consistent Government assurances is required to bring confidence to foreign fund managers.
    Rumours is a story that can't be verified. In a perfect free information society, rumours can't exists. Therefore, to reduce or avoid rumours, the Government should introduce the 'Freedom of Information Act'.
    23rd. Jan 98

  • Moody's to reviews rating on Malaysian Banks If rating of four out of the five largest banks are further downgraded will knock price from KLSE.
    Source: Moody' press release dated 15th. Jan 98 19th. Jan 98.

  • Foreign Investors According to the Sunday Times, most if not all foreign funds have lost up to 70% of their investment in the Far East stock markets. Until the market is stabalised and more transparent, do not expect them to return in the next 18 months. However, compulsive risk takers like Chinese from Taiwan and China are in the game.
    18th. Jan 98.

  • Ekran group of companies The bulk of Ekran's revenue and potential is from the Bakun dam project. Unless a replacement is found, the longer these companies remain suspended in KLSE; the bigger the price is going to fall when it resume trading. It is not at all surprise if it reach RM0.10/shares. As timber concession at Bakun dam area is utilised, if steps are not taken to prevent soil erosion, the project might not be able to revive in the future.
    We welcome the relisting of Ekran shares at KLSE. 20th. Jan 98.

  • Used Cars Market Price depression in the used cars market is short term. (1) New cars price will be increased dued to Ringgit depreciation and tax rised. (2) Current shortage of demand is caused by shortage of financing. Therefore, used cars price will pick up when liquidity is ease. 7th. Jan 97

  • Banks and Finance Companies About 60% of loan portfolio are exposed to stocks (misc), property and construction sectors. Up to RM50bn ~ RM100bn of loan could be dud in the new year. However, NPL (non performing loans) in the last recession in the 80's was between 30% to 40% of total loans; hence, local banks will managed through. Bank Negara should make known of these popential doubtful loans before merger is carried out.
    Merging of finance companies and banks is inevitable, primary in preperation for WTO agreement. As the Government will need to open up service sectors to foreigners.
    Currently, as most if not all banks have exceed their loans target, unless Bank Negara to revise guidelines, credit crunch is expected to last into second half of the new year.
    Source: Securities Commission of Malaysia 1996 annual report. 31st. Dec 97, 7th. Jan 98.

  • GDP, KLSE Market Capitalisation and Composite Index
    According to BN and MERC At the end of 1990; GDP, CI and market capitalisation was RM80bn, 509 points and RM131.7bn respectively. According to Bank Negara's 26th. December report; GDP, CI and market capitalisation is RM140bn, 556.35 points and RM359bn respectlively.
    As KLSE market capitalisation is greater than GDP; if market capitalisation is valued on PE ratio then; expected profit is loads of hot air, acceptable PE ratio is relatively high (if compared with Wall st and London), these plc are raping the nations with profits (which made the country highly uncompetitive and inefficent) or all of above.
    If market environment is similar to 1990; by applying market capitalisation/GDP ratio; then CI is about 360.If market capitalisation is at unity with GDP, then CI is about 220. Therefore, if market sentiments continue to weaken, the next band for market capitalisation to float is between RM140bn and RM230bn with corresponding CI of between 220 and 360 points. And the theoritical bottom band of market capitalisation is about RM70bn.
    The set back of market capitalisation/GDP ratio is assets listed in the KLSE may be more than before by proportion and CI is not fully correlated with market capitalisation. Of course, these theory of market capitalisation/GDP and many accounting ratio may not apply to Malaysia in the short term.
    26th, 28th. Dec 97.
  • KLSE Market Capitalisation About MYR530bn was wiped out from market capitalisation of KLSE by the crash of '97 from RM889bn at 1270 points in February to RM359bn at 556 points on 23rd. December. The country real GDP is about MYR140bn, nominal GNP of about MYR270bn and Gross National Saving of about 38% of GNP, means substantial amount of shares were bought with foreign funds (either as investor or borrowed). Bank Negara has an urgent task to establish the extend of these foreign loans to local investors and pay back time. These offshore loans is anything from USD20bn to USD100bn. At current foreign reserve of about MYR62bn, these foreign loan is a monster to MYR Forex. If any of these borrowers default on their repayment, to preserve the depleted foreign reserve, the Government must allow them to fold up. 25th. Dec 97

  • Moody's Rating on Long Term Bank Deposit for Malaysia is Baa1 as of today which is one grade higher than junk bond. Which mean either these rating agencies don't know about us or they know somethings that we don't. Anyhow, large exposure to property and equity sector by the banking industry is a major concern. 24th. December 97

  • KLSE behaviour is exceptional. (1) Two weeks ago, it rised by over 20% despite increased of base lending rate. (2) Today, KLSE gone up despite the rest of Asia/world were falling on news of Korean presidential election. As foreign firms are closing down their local research/analyst office means foreign funds aren't interested in KLSE for the moment. Trading in KLSE remain exceptional and unexplainable with rational. 20th. December 1997

  • How low Ringgit can devalue To remain competitive with other Asean country, Ringgit has to devalue (in USD) as much as Thai Bath, which is good for export. 1st. Dec 97.

  • What Shares to buy now? Those shares that are bought by major shareholders because major shareholders know these shares are below value, these shares has a good potential, these shares will sail thru recession and these major shareholders are prudent. 1st. Dec 97

  • Band Wagon Effect Society In Limited Information Society In good time, band wagon effect to gain is exaggerated by good news. However, in bad time, band wagon effect to loss is exaggerated again by good news. Because, lack of perfect information lead the public believe all good news is false or coverup of even worst news. 1st. Dec 97

  • KLSE Although composite index of 550 is below common sense; but fundamental applied only to limited well managed companies in KLSE. Hence, no one can predict the bottom of fall. However, falls is likely to continue with news of crash of property market, fall of tycoons and winding up of listed companies. 30th. Nov 97.

  • Tycoons Tycoons made hundred of millions from the stock market bull run. Only greedy tycoons get caught in the fall of 97, except a few being instructed by the highest authority to pop up their respective shares. This fall allowed tycoons to acquire shares at low price for the next bull run. 30th. Nov 97.

  • American like to say; the higher the monkey climb the pole, the more his ass is expose. Tycoons that fall are those over exposed themselves to media and hostile to any criticism. 30th. Nov 97.


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