Will the Share Market Rise or Fall if there is a Pakatan Victory?


By Koon Yew Yin

Quote from an angry Internet reader

If [the] market plunge(s), it will rise up again but if a country goes bankrupt, it is gone forever. I don’t know why you can’t get it in your brain unless your brain is always thinking of sex with your mistress.

During the last few weeks there have been increasing predictions from Barisan leaders emphasising that there will be a sharp fall in the share market should there be a Pakatan Rakyat victory.

The latest prediction by MCA leader Chua Soi Lek in a party event at Kepong argues that Malaysia will witness a “‘huge financial disaster if Pakatan Rakyat comes to power in the 13th general election”.

This type of electioneering tactic aimed at frightening the electorate is dangerous and irresponsible. How can the MCA president be so confident as to openly declare that our stock market will drop to 500 points within a week if the opposition wins power?

Challenge to Dr. Chua Soi Lek

Let us subject his prediction to closer analysis. Firstly, it is not clear whether he stated that the KLCI will drop by 500 points or drop to 500 points. Whichever is the correct version, his claim implies that anything from one to two thirds of the total share value of the KLCI will be wiped out due to the election result.

Now if this were to happen, the drop will be unprecedented in the history of share markets anywhere in the world. So far as I am aware, no modern national stock exchange has had such a sharp fall as a result of a national election outcome and I am sure it will not happen in Malaysia.

I am willing to place a big bet with Dr. Chua that his fears of a 500 point are unfounded and baseless. The loser of the bet will have to donate an agreed sum of money to the other person’s preferred charity. I hope he will agree to this and prove to be a man of his word.

Will the market rise on a BN victory

Not only should we discount the possibility of a sharp fall, but we should also – on the basis of stock market behavior elsewhere in the world – not assume that the Malaysian share market will automatically rise as the result of a Barisan victory. For example, on November 7th, immediately after Obama, the incumbent Democrat president was returned to power, the Dow Jones industrial average plummeted as much as 369 points, or 2.8 per cent, in the first two hours of trading. It recovered in the afternoon, but ended down 313, its biggest point drop for more than a year.

Various analysts that I have talked with have made the point that Chua Soi Lek is not a stock market expert. They argue that in trying to exaggerate the prospect of a market meltdown, Dr. Chua is contradicting the Barisan’s argument that the economy is fundamentally sound and resilient.

At the same time, these analysts anticipate that there could be a market fall in the KLCI even if the Barisan is returned to power. They base this prediction on several factors:

  1. the BN through its control of EPF and other major government and government-linked investors has been supporting the market and propping up UMNO-linked counters such as Felda Global Ventures Holdings Bhd (FGV) which is struggling to hold on to its initial public offer price of RM4.55. Without this pre-election support aimed at placating the Felda settlers and gaining their vote, FGV will definitely be trading below the IPO price.

  2. The European and American economies are still going through a phase of recovery. Although there has been an inflow of foreign funds into the Malaysian market, there could just as quickly be a reversal of financial flows.

Prediction of market rise with Pakatan victory

What is likely to happen should there be a Pakatan victory? My prediction is that there will be a rise in the share market should there be no attempt at violence or a coup d’etat by the losers. This is because of the following factors:

  1. The Malaysian economy has been under-performing all these years while under BN rule. The attached table shows the growth of GDP per capita of South Korea, Taiwan, Singapore and Malaysia from 1980 to 2011. From the table we can see the gap has arisen between these countries and Malaysia in this measurement of the wealth of nations. Should we continue under BN rule, our economy is likely to continue to under-perform and our stock market will continue to stagnate not only in the short term after the elections but for the long term.

  2. Foreign investors who have long been underweight in the Malaysian market due to Mahathir’s Disastrous Economic Model built around mega projects, crony capitalists as key players, and other distortionary policies will be attracted back into the market. As recently as in 2011, Bank of America Merrill Lynch noted that Malaysia remained a “big underweight” for investors in emerging markets. An underweight call is a recommendation for investors to reduce their investments in a particular security, asset class or, in this case, country. Malaysia also slipped from 14th place to dead last among the 15 countries studied by the investment bank, despite the roll out of big ticket Economic Transformation Programme projects.

There are other indicators that the market will not take fright but will rally on account of a Pakatan victory. As pointed out by an SME investor, they include:

  1. The fact that the opposition states of Penang, Selangor, Kedah and Kelantan have attracted more investment that the ten BN states by accounting for RM25 billion in investments comprising 53 per cent of Malaysia’s total investments of RM47.2 billion in 2010.

  2. If a major sell-down occurs in the Bursa as a result of a Pakatan victory, the nation’s economic institutions such as EPF, PNB, Khazanah and other GLCs would support the market.

  3. PAS has administered Kelantan for more than 20 years, and Kedah for five years. These two PAS state administrations have neither acquired nor appropriated property, assets or businesses belonging to non-Muslims.

Proposals for a sustainable market rise

Although I am optimistic that the market will rise on account of a Pakatan victory, it is necessary for the new government to act decisively when it comes to power. I would like to propose the following measures to ensure that the post-elections market rise is sustainable:

  1. To form a business council with captains of the leading industries to find ways for economic improvement and expansion

  2. MACC directly under Parliament to look at illicit money outflows and recovery of the monies

  3. Investigate the way Petronas sells our national oil and to verify the rumour that it has a long term contract with a company which buys it at much lower than current prices.

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  1. #1 by waterfrontcoolie on Thursday, 14 February 2013 - 12:54 pm

    This is another “No Brainer” from CSL. Based on the performance of Selangor and Penang itself, it is a proven fact that investors will indeed react even more positively. Such claim by CSL is also suggesting that others are as idiotic as MCA members in believing the Printed Toilet Papers issued daily. Investors are only interested in the stability of the place and in particular investors from China have gone to Africa to invest and they read reality of the local scenario better than MCA for sure! This can only come from desperadoes who knew they have nothing to counter their opponents in term of policies and facts. The more you attempt such slogans, I can assure you more of your community will leave your party. Why? it is insulting to be associated with such mentality!

  2. #2 by SENGLANG on Thursday, 14 February 2013 - 1:39 pm

    All the BN minister are running nuts by now and panicking like rats being pour with hot oil. All have lost their senses and talk with out their brain.

    DPM now add that BR1M will increase to 1000 if BN win GE13? May be some will believe in him, but not the people who remain with their common sense. What the government have will not directly tie up to BN win or not, if there is so, the opposite should be the case. With BN corrupt self that look most likely will not change and will be worst if they win 2/3. They will be more arrogant and corruption will become more rampant, as it is time to pay back their sponsors.

  3. #3 by SENGLANG on Thursday, 14 February 2013 - 2:22 pm

    http://www.malaysiakini.com/news/221363

    another twist in the Psy vs Lo Shang that has embarrassed BN.

    any taker?

    BN leaders are getting mad by the days as GE13 is approaching.

  4. #4 by lee tai king (previously dagen) on Thursday, 14 February 2013 - 2:49 pm

    Stock market meltdown if pakatan wins? No way unless soilek really meant to say is that after GE13 defeat all the super rich umnoputras would immediately jump boat (and abandon the country) together with their ill-gotten wealth and the wealth of all the GLC’s under their control AND leaving behind their tonnes and tonnes of debt for the rakyat to clear.

    So soilek can you pls clarify?

  5. #5 by sheriff singh on Thursday, 14 February 2013 - 3:08 pm

    Just ready to ‘BUY BUY BUY.

    A Pakatan victory is good for you.

  6. #6 by Loh on Thursday, 14 February 2013 - 5:07 pm

    The Pakatan Rakyat government should task MACC to make corrupted past ministers accounted for their wealth creation and those obtained through means beyond their emoluments should be returned to the state, as was carried out by Thailand in the 1990s against the unusually rich politicians. That should bring to national coffers hundreds of billion ringgits, and be a lesson to politicians in future that it is better to make a name, a good name, than to create wealth. With that Mamakthir would choose to meet his maker than to wait for the call.

  7. #7 by good coolie on Thursday, 14 February 2013 - 6:01 pm

    Well the Psy-fellow, that demi-god is the horse-rider; but who is the horse? (Answer on next line):
    BN!

  8. #8 by sotong on Thursday, 14 February 2013 - 6:12 pm

    You need to know the real financial situation of the country and fix it.

    Starting new by getting rid of the old system for long term benefit.

  9. #9 by omeqiu on Thursday, 14 February 2013 - 6:20 pm

    Excellent analysis. Real investors will definitely ignore Dr. Chua’s ‘predictions’. He will only frighten the hit-and-run ‘casino-players’. It’s a good time to watch and buy when PR wins.

  10. #10 by joean on Thursday, 14 February 2013 - 6:41 pm

    Dr. CSL is only good at acting porn. He should be given the position of Rais Yatim, so that he can legalized porn!

  11. #11 by boh-liao on Friday, 15 February 2013 - 1:17 am

    PornoSnake talked rubbish; he should hv known better dat many foreign diplomats felt uncomfortable n insulted 2 hv 2 speak with him (as MCA #1 n well known porno 4nicator n wife cheater)

  12. #12 by Bigjoe on Friday, 15 February 2013 - 7:43 am

    Put me down for US$10m if it falls 500 points and US$100m TO 500pts 10 days after the GE against CSL..

  13. #13 by tuahpekkong on Friday, 15 February 2013 - 9:53 am

    I remember Sin Chew Daily quoted Solid as saying that the stock market might drop by as much as 500 points within a week should the Opposition win the next GE. A drop of 500 points from the current level of 1630 points would mean a drop of around 30%. This is already a very serious plunge which I consider as extremely unlikely. I think a drop of the order of 15% or around 250 points or at worst to the levels achieved (just below 1300 points) when Europe’s financial crisis reached its nadir is more probable. A drop to 500 points (a 70 % drop, 0% chance of this happening) would be a catastrophe of an unprecedented scale. Remember that EPF has about 30% (worth about RM170 billion now) of its assets invested in the stock market. Anyway, don’t be unduly worried by Solid’s scare tactics. Just vote those whom you think deserve your support.

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