More vibrant stock market
The first five days of the market since the new Pakatan Harapan government took over has been exciting to say the least.
While volatility ruled the market, it was undeniable that suppressed bullish undertones were surfacing.
If one were to simply look at the FBM KLCI index, Bursa Malaysia was simply up 12 points to 1,858 over the last five trading days. The mood, however, has swung tremendously.
On hindsight, it did appear as if the market was warning investors of a regime change. The market never lies. Political stocks were dropping like a rock, buying was so extremely muted and volumes had never been thinner.
On May 14, perhaps the most exciting market day in a long time, stocks of the old regime fell to new lows, while those linked to the new regime rose.
Nonetheless, with the new government emphasising meritocracy and transparency, it would appear that those who still adopt the crony capitalism mentality will not survive in this new regime. Contracts aren’t going to be dished to a company simply because it is close to the new government.
Over the last few days, we have seen some of the biggest beneficiaries of the old regime, such as George Kent (M) Bhd and MyEG Services Bhd hit limit-down for two consecutive days, compelling Bursa Malaysia to call a lower price limit on both stocks Wednesday.
As new policies and reforms are announced by the hour, what is obvious is that there is a strong will to change. It is early days, and implementation will be key. Nonetheless fund managers and those in the investing fraternity are hopeful and share with us what they hope to see.
SCOTT LIM
Omni Capital Partners Sdn Bhd
Managing director
> Outlook on market
It certainly has brightened considerably with the elections over and with the change in government.
However, major challenges are aplenty as the previous government has compromised the structural integrity of the country and the economy. Long-term structures have deteriorated significantly to the point of near collapse. Bad financial health of the government, the failure of key government institutions, the failed education system and the brain drain are just some of the key issues needed to be attended to urgently. The reforms agenda looks promising under the new government and most believe better days are ahead.
The new government is eager to prove its worth over the next five years to secure its next mandate. Malaysia has a lot to catch up because the world has changed a lot since. The key lies in not returning to the old ways of doing things but to do things differently.
> Impact of meritocracy and transparency
Open tenders will bring best quality of work at most competitive prices, meritocracy will bring best performance and zero tolerance on corruption can prevent leakages. The combination of these three actions can only mean the lowest cost of doing business, maximum profitability and best growth potential.
> Impact on currency
Our currency outlook depends on how we manage our country’s resources. The previous government has mismanaged the economy such that we are relying on consistent currency devaluation or piling up on debts for growth. We need to reduce debts urgently to avoid credit downgrades or face potential defaults should there be a global downturn.
In the short term, the outlook is heavily dependent on the speed and depth of reforms, but in the long term, restoring of key competitive advantages that we have lost has most impact.
> How to attract big money into the market
We need to stop all the unnecessary mega projects immediately to reduce government deficit and debt. To save costs, only open tenders are allowed for government projects and procurement. To bring back business and investors’ confidence, bring back the rule of law, restore the independence of key government institutions, implement meritocracy, and zero tolerance on corruption.
Revamp the education system is a must to restore long term competitiveness of our country. Most important of all, we need to end the New Economic Policy and replace it with a better social-economic affirmative action plan for the weak and poor regardless of race and religion. It is high time we reverse the brain drain and attract talents back. Wealth creation for the nation lies with amassing the world talents, not resources. Big money will follow big talent.
> How to be a Singapore or a Hong Kong
A market that is non-transparent tends to be corrupted or full of conflicts of interests and loopholes so it allows the invisible hand to act. Singapore and Hong Kong ranked lowest among all countries in terms of the corruption index, and that speaks volume.
Their authorities have good execution and do not flip-flop on their policies. They have strict implementation of the rule of law, strong and independent management, allowing free markets to work its way through. On top of all that, the authorities are open-minded and very progressive. They take risk on new ideas.
ANTHONY SIAU
Ericsenz Capital Pte Ltd
Chief executive officer
> Outlook on market
It’s barely five business days since the new government has taken over, and so far the market has taken a cautious approach, but not without excitement and volatility. Looking at the slew of activities and initiatives taken, I expect the market to react positively to the measures taken by the new government under Prime Minister Tun Dr Mahathir Mohamad. Also, the relative market price earnings ratio is on the high side. Having said that, there is a lot of value to be extracted in selected sectors.
> Impact of meritocracy and transparency
The cost of doing business will definitely go down, and this will ultimately benefit consumers. However, the effectiveness of policy implementation will be the key, and it will take time. On a separate note, the GST being zerorised effective June 1 will be an immediate big plus if the prices go down by at least 6%.
Big ticket items such as property and automobile will become more affordable. Also with a fixed price on petrol, the automobile sector should see some potential upside if the ringgit sustains strength.
I expect government-linked companies (GLCs) to trend upwards in future, but this would depend on the level of realignment that the new administration is going to implement at the GLCs, including reducing political appointees and increase professional representation, which if implemented successfully will augur well for Malaysia’s future.
The chilly road ahead is only temporary during the initial transition period, with the slew of initiatives and actions taken by the new administration. With concrete timeline, I believe this will mean a stronger ringgit over time as Malaysia’s credibility improves together with much stronger local consumption.
> How to attract big money into the Malaysian market
The immediate action is to give the assurance that the new administration is able to take on the tasks of not just managing the country, but also to improve the entire political system, including stamping out corruption and putting Malaysia back on the right track.
Swift and decisive actions that is pro-market and pro-rakyat are important.
Prosecution of wrong-doers are equally important to the extent it does not run foul with the law. We need clarity on policy and treatment of corporates that are used to aligning themselves with the previous government. If we can do this, then foreign funds will re-enter our market with an impact.
> How to be a Singapore or a Hong Kong
Before we start comparing Malaysia to the likes of Hong Kong or Singapore, we need to accord the new administration enough time to revamp and restructure the current system which has been there since independence. This is especially so in our race-based policies and protectionism attitude.
Once we can address these, then only can we start discussing Malaysia moving into the same league as Hong Kong or Singapore.
WONG MUH RONG
Astramina Advisory Sdn Bhd
Managing director
> Outlook
I expect the market to stabilise in the short to mid term as there are positive developments daily with the newly-formed government. The ultimate goal of the new government is to tackle the economic issues that the nation is now facing, and this will boost up the confidence in the capital market.
The move by the new government in inviting various experts to contribute their views on the nation’s reform is a timely move. The market will need to take time to absorb all the new initiatives and changes that will be made. This is ultimately good in the mid to long run.
> Impact
Open tenders should be advocated as it promotes transparency in the bidding process and this will increase the competitiveness and competency of the government and thus establish a more vibrant business environment.
The cost of doing business should be lower by this initiative due to higher transparency in the bidding process. Earnings for GLCs might potentially be affected as they will be competing with the private sector on the same ground in securing contracts.
Overall, this should increase the competitiveness not only among GLCs but also the private sector. It will push all parties to be more competent in their delivery, as it now means that it is based on one’s ability to carry the contract.
As for GLCs, instead of having direct competition with the private sectors to bid for the same projects, they can consider switching their focus to projects that require a longer gestation period for investment returns. This can ensure that the private sector and GLCs are focusing on different or specialised areas that can further contribute to the growth of the economy. GLC can also serve as one of the anchor investors for public-private-partnership initiative (PPP), which I believe deserves a more in depts revisit or consideration by the new government.
> How to attract big money
I think for the first three to nine months, setting out the framework and reforming all elements – all this is like building a new house.
We need to ensure that all key pillars are in place. Then the next six to 36 months are to add all the details such as the bricks, mortar, design and finally, touching up within for the last next nine to 12 months thereafter.
I think the new government will have to demonstrate the importance of integrity to maintain and improve the confidence of the people as well as the capital market. They must show the people that the new government can deliver the reform promises and manifesto for GE14.
Besides, the new government needs to show unity in the administration and give full support to projects that will benefit the people and elevate the image and branding of the country. For example – Xiamen University, this project has attracted foreign direct investment of more than RM1.2bil to Malaysia, as well as the knowledge and technology transfer.
This project is testament of the benefits reaped because of the closer ties between China and Malaysia.
To attract funds into the market, Malaysia needs to create a business-friendly environment, one that helps, encourages and gives incentives to potential investors. The fundamentals of this are to enhance corporate governance, transparency, competitive pricing, and policies. All these have to come hand-in-hand.
> How to be a Singapore or a Hong Kong
For Malaysia to be one of the most transparent countries such as Singapore and Hong Kong, it has to be equipped with open business and government practices, well-distributed political power and the least corruption. Malaysia needs to move towards the disclosure based regime rather than the current semi disclosure with elements of merit.
The market should be presented with information on a full disclosure basis and work towards post assessment regime with post-event monitoring. Investors shall make their own judgement and evaluate based on these information. This will enhance and encourage better disclosure and full transparency. Timely disclosure of information is the key to success.
IAN YOONG
Former investment banker and private equity investor
> Outlook
I am positive on our capital markets and economy. There is renewed confidence and belief.
Dr Mahathir has assembled a dream team of administrators and technocrats. If this new government can fulfil even half of what it has promised, Malaysia will be a developed nation within five to 10 years.
These are early days yet and there will undoubtedly be hiccups along the way, but Malaysia is undergoing a paradigm shift of gargantuan proportions. This will be Dr Mahathir’s legacy.
> Impact
Open tenders, meritocracy and zero tolerance of corruption will significantly reduce the cost of doing business. A level playing field will attract more investment and greater participation.
If corruption is reduced to half in the short term, this will be a major achievement. We should, of course, aspire for zero corruption. Malaysia may even see a reverse brain drain in coming years.
We must improve the remuneration of civil servants to combat corruption. We must reduce the need if not the want factor.
Many analysts expect the ringgit to weaken. I am a contrarian. I expect the ringgit to move to 3.70-3.80 by year-end. There is renewed confidence. Malaysia has a tremendous future.
> How to attract big money
A new government which we already have.
Malaysia needs to implement concrete reforms. The changes that we have seen in the week after the elections is amazing.
The regulators and judiciary system have to be independent. I am confident we are on our way.
VINCENT LAU
Rakuten Trade Sdn Bhd
Vice-president (research)
> Outlook
We are positive about the governance and policy reforms that are aimed at instilling confidence amid the transition of economy. Once the dust has settled, when the foreign fund outflows stop (and we are seeing it tapering now), I think the market could be primed for a bullish environment looking forward.
As the reforms agenda and policies become clearer, the market will start to rerate, and this will on its own attract buying.
As a matter of fact, most investors with political and construction stocks in their portfolio are now badly hit. We saw these counters hitting limit down and being sold down pretty mercilessly.
All I can say is that, it’s a small price to pay for an upcoming bull in the market. What is for sure is that, the market is now healthier and fairer.
Retailers have been euphoric and have been buying strongly into the market on better prospects. A post-election rally may take place when things get calmer
> Impact
It will lower the cost of doing business, with less leakages, companies automatically become more competitive and increase productivity, as it’s now a scenario of the survival of the fittest. Delivering on time and within budget will be a primary factor, or the companies risk being penalised. More importantly, the old entitlement mentality will have to go. This change in attitude alone will make companies more efficient, and the ultimate beneficiary will be the rakyat. The rakyat gets higher quality service or products at a cheaper cost.
As for the GLCs, should they undergo the changes required by the new government, earnings will improve as they become more efficient.
Short term pain for long term gains, necessary reforms and hard decisions are all needed to be made. We believe our Dr Mahathir has the will and power to do so. We believe the reform agenda will take time but they are on the right track now. Over the temporary transition period, it is normal if the currency sees some weakness. Having said that, today it is being supported by rising crude oil prices, where Malaysia is a beneficiary being a net exporter.
> How to attract big money
Market and business friendly processes with a high level of corporate governance and the liberalisation of the markets are some of the things that will put Malaysia back into the radar of foreigners.
Of course measures alone aren’t enough. There must be real follow through on the execution bit. It will take time for foreigners to be convinced. 60 years is hard to reverse. Foreign investors won’t simply put a big amount of money unless they are certain the quality of management and leadership in the country is stellar and clean.
They need the surety that the rule of law exists, and that their investments are protected.
It is early days now, but it is definitely looking good.
> How to be a Singapore or a Hong Kong
The reforms currently being announced, are the right step in the right direction. Malaysia needs institutionalised reform and the only way is to move towards meritocracy where the best of minds are being tapped to do the job.
To show the world that Malaysia is a serious player, the emphasis moving forward needs to be more on abilities, rather than religion. The education system needs to be revamped so that every young Malaysia is basically equipped with a palatable amount of comprehension, knowledge and communication skills.
DANNY WONG
Areca Capital
Managing director
> Outlook
We are positive on the market. We are confident that the new government, together with the council of eminent persons can resolve most of the economic and financial issues plaguing us in the past. This combined with efforts from the institutional reform committee should in theory lay the right foundations for years to come.
> Impact
There was the issue of GLCs crowding out competition. The measures will lead to a more level playing field. Competition forces firms to be more efficient and productive. This is for the betterment of the country.
We all know Rome was not built in one day. And now, Dr Mahathir is rebuilding Rome back. So yes, it might take a while.
In the short term, there may be uncertainties and undoubtedly this will impact the ringgit. For the long term, if the new government keeps good on its promises and reforms, it is ringgit-positive.
The world is watching but judging from the speed of development, it looks very positive. I believe we are making a good impression in the eyes of the world with our progress and turnaround.
In the meantime, factors like the repatriation of the moneys overseas from the 1MDB scandal combined with sustained commodity prices could help push the ringgit higher.
> How to attract big money
More efficient spending, less wastages or in other words better fiscal management combined with better governance are crucial factors.
As Dr Mahathir has always been pro-business and pro-market, we see a bright future ahead in terms of courting foreign direct investments and attracting fund inflows.
> To be a Singapore or a Hong Kong
A strong will to carry out the reforms, and less politics.
