1,000 points, so what?

In his Sunday column yesterday, Chun Wai said "more good news" are a-coming to Malaysia.

Beh kuih gian (Penang Hokkien for belum puas), he blogged close to midnight last night, asking if KLCI is going to hit 1,000 points this week, if not today.

You may already know that, at the tail-end of the Abdullah Administration which ended April 3, KLCI hit rock bottom at 836.51 points on March 12.

The index rebounded to 992.68 points on Friday, April 24, advancing a total of 154.88 points, or 18.5%. It's close to a seven-month high on the bourse.

Trading volume leapfrogged to 2.08 billion shares, the highest since since October 2007, hitting a turnover of an estimated RM1.67 billion.

Is this sustainable?

I normally practise this rule of thumb: When people rush into the market, I'll get out.

I read yesterday of the caution given by OSK Investment Bank head of research Chris Eng:

"At this juncture, the market is ripe for a correction.

Too fast, too much, we think the market is ripe for a correction."

Eng's caveat is that the technical correction -- which he mentioned twice in a short breath -- will not create a new low, though.

If you notice the market movements, GLC counters showed robust trading activities. Window dressing is a standard procedure with the emperor puts on his new clothes.

Government in need of loans

Meanwhile, the government is coming to the citizens for loans, sweeping some RM10.33 billion from the market in a whirlwind fortnight.

April 14, Bank Negara started the ball rolling by launching a sukuk (Islamic bond), named National Savings Bonds, with a total amount of RM5 billion. Subscription is capped at RM50,000.00 per person. All taken up.

GLC Permodalan Nasional Berhad (PNB), followed suit with two tranches of new units of trust funds it manages.

Last Tuesday, a new batch of Amanah Saham Malaysia (ASM) was launched with a race-based allocation of 20,000.00 units per person. Total amount is RM2 billion into 3.33 billion units, split into 50:30:15:5 quota for Bumiputras, Chinese, Indians and Other Races, respectively.

The allocation for Chinese subscription had all been snapped up within two days, whereas the Bumiputras and Indians took up only about 10.71% and 4% of the assigned quota, respectively..

Today, the PNB will launch 2 million new units of Amanah Saham Wawasan 2020 (ASW2020) valued at RM3.33 billion. It's split on a 51:49 ratio for Bumiputras and non-Bumiputras.

This is how Najib's Administration will bankroll part of the economy in the next few years, not withstanding the RM7 billion stimulus budget and the RM60 billion mini budget unveiled last November and March, respectively, that are in dire need of quick-fix liquidity.

Value creation?

Senior banker friends told me that one of the reasons why the Chinese quota of the funds were snapped up quick was because their fixed deposits were only returning a mere 2% returns, whereas Bank Negara's sukuk guaranteed a 5% yield, and PNB -- going by track records - offers much more significant dividends, consistently.

On the yields from fixed deposits, P. Gunasegaram observed the following in his Saturday column:

Currently, at around 2% a year, that does not even equate to the inflation rate, which was 5.4% last year, although it is expected to come down to around 2% this year.

That means, after adjusting for inflation, depositors won’t get anything from keeping their money with banks.

Net net, the Chinese citizens are just practising common sense by sweeping from their FD accounts to place their money in higher-yielding instruments like these. It's a rational effort to squeeze more juice from a stagnated amount of savings kept in the country.

With the savings accounts swapped and quantum of savings stagnated, retail investors will possibly stay on the sideline while fund managers take to the lonesome trading floor.

Value creation? Hmmm... where are the inflows of foreign fund managers in their tuxedos?