KUALA LUMPUR, Nov 19 — Tun Dr Mahathir Mohamad threw cold water today to the belief that the rising Kuala Lumpur Composite Index (KLCI) indicates a healthy economy, saying it is mainly due to foreign funds buying cheap stocks for short-term gains.
The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) was at 1,502.73, up 6.08 points, at 3.30pm today. It has been rising steadily in the past few weeks to breach 1,500-point mark.
“Some people believe that the rise of the KLCI is an indicator of the healthy state of the Malaysian economy. This may be true but let me throw some cold water in the belief that the index indicates that the economy is doing very well,” the former prime minister said in a posting in his popular www.chedet.cc blog today.
He admitted the local economy was doing well but doubted it was “enough to push the KLCI to record highs”.
“What is happening is that a lot of foreign money is coming in to buy Malaysian stocks. In itself it is not bad.
“It is also a kind of foreign direct investment (FDI). But this kind of FDI is not about setting up industries to produce goods for export. The latter will not be easily liquidated to take the invested capital out. The plants which are set up cannot be easily sold. The investors will have to manage them through good and bad times to get a return on their investments,” Dr Mahathir (picture) said.
The plain-speaking politician pointed out that FDI in stocks and shares can be sold any time and the proceeds taken out, saying that just “as increases in investments push up share prices and the KLCI, rapid or massive divestments will push down the share prices and index”.
He noted reports the Federal Reserve Bank of the United States was pumping US$600 billion (RM1.86 trillion) into the US economy with part of the money possibly being invested in stock and shares of developing countries, similar to previous episodes of hot money flooding stock markets around the world 12 years ago.
Dr Mahathir recalled that in 1997-1998, foreign investors pulled out their investments and the KLCI dropped from 1,300 to 262.
“Naturally, a lot of local investors lost money. They could not meet margin calls nor raise money to augment collaterals for their bank loans. The banks found themselves burdened with large numbers of non-performing loans and had to face the threat of bankruptcy.
“Should the banks collapse the economy of the country will go into a tailspin. It did in 1997-1998. It will happen again should the foreign investors dump their Malaysian shares to take profits from capital gains,” he added.
He bluntly said that foreign funds, especially from the US coming in to invest in Malaysia’s stock market at this time, must be considered as hot money.
“I would not be surprised when the KLCI peaks the foreign investors will dump their shares and collect capital gains. The share prices will fall rapidly and Malaysians who had chased the shares on their way up will be asked to meet margin calls. If they fail they will lose a lot of money.
“I hope I am wrong. But sometimes my predictions about money and markets have proven to be right,” Dr Mahathir said, declaring that he only owns 200 Malayan Tobacco shares bought before he became the education minister in the 1974.
“I have nothing to gain or to lose, but the country and the stock market investors will lose,” he added.
Current Prime Minister Datuk Seri Najib Razak is betting on a RM1.4 trillion 10-year programme to lift the country to a higher-income nation under the Vision 2020 plan mooted by Dr Mahathir in 1991. However, vociferous sections of the dominant Malay community want the government to guarantee they still have a mandatory 30 per cent equity in all business ventures, a policy that has kept many investors away.
The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) was at 1,502.73, up 6.08 points, at 3.30pm today. It has been rising steadily in the past few weeks to breach 1,500-point mark.
“Some people believe that the rise of the KLCI is an indicator of the healthy state of the Malaysian economy. This may be true but let me throw some cold water in the belief that the index indicates that the economy is doing very well,” the former prime minister said in a posting in his popular www.chedet.cc blog today.
He admitted the local economy was doing well but doubted it was “enough to push the KLCI to record highs”.
“What is happening is that a lot of foreign money is coming in to buy Malaysian stocks. In itself it is not bad.
“It is also a kind of foreign direct investment (FDI). But this kind of FDI is not about setting up industries to produce goods for export. The latter will not be easily liquidated to take the invested capital out. The plants which are set up cannot be easily sold. The investors will have to manage them through good and bad times to get a return on their investments,” Dr Mahathir (picture) said.The plain-speaking politician pointed out that FDI in stocks and shares can be sold any time and the proceeds taken out, saying that just “as increases in investments push up share prices and the KLCI, rapid or massive divestments will push down the share prices and index”.
He noted reports the Federal Reserve Bank of the United States was pumping US$600 billion (RM1.86 trillion) into the US economy with part of the money possibly being invested in stock and shares of developing countries, similar to previous episodes of hot money flooding stock markets around the world 12 years ago.
Dr Mahathir recalled that in 1997-1998, foreign investors pulled out their investments and the KLCI dropped from 1,300 to 262.
“Naturally, a lot of local investors lost money. They could not meet margin calls nor raise money to augment collaterals for their bank loans. The banks found themselves burdened with large numbers of non-performing loans and had to face the threat of bankruptcy.
“Should the banks collapse the economy of the country will go into a tailspin. It did in 1997-1998. It will happen again should the foreign investors dump their Malaysian shares to take profits from capital gains,” he added.
He bluntly said that foreign funds, especially from the US coming in to invest in Malaysia’s stock market at this time, must be considered as hot money.
“I would not be surprised when the KLCI peaks the foreign investors will dump their shares and collect capital gains. The share prices will fall rapidly and Malaysians who had chased the shares on their way up will be asked to meet margin calls. If they fail they will lose a lot of money.
“I hope I am wrong. But sometimes my predictions about money and markets have proven to be right,” Dr Mahathir said, declaring that he only owns 200 Malayan Tobacco shares bought before he became the education minister in the 1974.
“I have nothing to gain or to lose, but the country and the stock market investors will lose,” he added.
Current Prime Minister Datuk Seri Najib Razak is betting on a RM1.4 trillion 10-year programme to lift the country to a higher-income nation under the Vision 2020 plan mooted by Dr Mahathir in 1991. However, vociferous sections of the dominant Malay community want the government to guarantee they still have a mandatory 30 per cent equity in all business ventures, a policy that has kept many investors away.
No comments:
Post a Comment