Wednesday, November 28, 2012

The Pink Elephant In The Room

You are in a room in a social setting with a few people and there is a pink elephant in the room as well. How long can you carry on before you start talking about the pink elephant? In local financial markets, the pink elephant is the results of the upcoming elections. What if? 

My opinion, for what it is worth, the ruling party mightl win only one state in the Peninsula, I find it very hard to see where the second state is coming from. What about phantom voters and rigged votes? That can only be used in close seats, its pointless to use rigged votes in all seats, and I think there are not enough of such votes to go around town.

Whether its Anwar or the leader from PAS as PM, I don't think thats an issue anymore. PKR may lose some votes on that but miniscule.

Will there be a hung parliament? I think that is the best the ruling party can hope for, a hung parliament. Then its a jockeying of candidates to move to one side or another. Not a good situation. However, I do think in a hung parliament situation, the momentum will favour people moving to PKR rather than the other way around. Because a hung parliament already means, the tide has shifted significantly, and shifting still, ... for politicians with a bit of brains, a sinking ship or a new ship - no contest. 

If the opposition wins convincingly, what will happen to the stock market? I read in the front page of The Star, of all places, the front page!!! Talk about media propaganda. Scare tactics started already. 

First of all, there are three components, one is foreign funds, two local funds, three retail funds. As the election draws closer (say two weeks to elections), retail funds would exit already. Local funds being local funds will stay put, anyway, the big local funds already controlled the indexed stocks.

The key scare tactic is to instil into the public that foreign funds will exit and cause a plunge. Let's look at the size of foreign funds. They make up around 20% of volume. Look at the stock they hold: Public Bank, IOI Corp, KLK, BAT, Guinness, DIGI, IHH .... there are very few that are holding big local indexed GLCs. Ask any genuine head of sales or head of research NOW, they will tell you most of their clients are soooo underweight Malaysia, even though the controlled mainstream media would want you to believe otherwise.

Look at the stocks above, will the fundamentals change significantly for these stocks should there be a change in government???? Thailand changes government every couple of years, see what happened to their civil service and listed companies .... same-same!!! Just because this is going to be our first time, its easier to put up scare tactics cause we have not travelled this path before.

I believe the level of foreign shareholdings in local stocks are low, and they are in "safe counters" anyway. So, the sell down will be minimal. A probable fact that not many realise is that a substantial amount of the so called foreign funds now who are long Malaysian stocks,.... are probably Malaysian owned funds rerouted, no need for me to go into possible details.

A recent report in The Star, UOB KayHian's Vincent Khoo was unconvinced on the local market stating in a report that foreign institutional funds that it had met were mostly underweight on Malaysia and continued to be “wary” of Malaysia's index components' high valuations.

Top Ten Issues That Divide Malaysians according to a survey by Merdeka Centre for Opinion Research

I am not trying to put up a rosy picture should there be a change in government. I am trying to put up a realistic picture. Yes, markets will go down and stay there for a couple of months until there is stability, a proper manifesto and proper execution that things are different. I see index could go to 1,400-1,450 temporarily. But consider this:

- there will be more "real tenders of government projects"
- there will be better utilisation and accountability of our "big revenue items"
- there will still be corruption but hopefully a bit less, but let's give them 5 years la ... we gave 50 to someone, we cannot give them 5???

We so badly need a two party system in our country for the democratisation process to make any headway.