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Like a cat on a wall, the KLCI clings to the 700 level. Only the concerted intervention of local funds keeps it from joining the non-KLCI stocks at the 300 level. The funds have reasons of their own for this game of statistical brinksmanship. It must be assumed that they are aware efforts to manipulate or "corner" a market have often been disastrous for those who have attempted it. One only has to ask the Bank Negara of their experiences with the tin market and the currency market.
If you happen to own Puncak (a KLCI component) you will not be comforted to be told the KLCI has declined only 25% from the high, and it is now trading sideways. Puncak hit a high of RM6.00 and is now trading at RM2.35, a decline of 61%.
The media has not done well. NSTP hit a high of RM18.60 and now trades for RM5.70, a value 70% less. TV3 was once sold for RM5.40, and today is available for RM1.54, a decline of 71%. Both are components of the KLCI.
The banks have not been spared. Hong Leong Bank had a high for the year of RM8.40, and today trades for RM3.40, a shrinkage of 60%. MBf Cap had a high of RM1.38, and now trades at RM0.24, a decline of 83%. Affin Bank once traded as high as RM4.80, and now is offered at RM1.82, a retreat of 62%.
It is clear that a few stocks are being supported, while the majority reflect declines of over 50%, many substantially more than 60%. Thus, it may readily be seen that the KLCI does not give a true indication of the Malaysian market.
If all is well with the economy, why are we seeing these depressed numbers, which reflect a situation closer to the depths of the crisis than a recovery. Part of the answer lies in the failure of the Malaysian companies to take advantage of the past two years to improve their appearance to potential investors. The Securities Commission has attempted to identify those companies which meet a minimum standard of corporate responsibility.
The Securities Commission is able to identify only 47 companies. Only 47 stocks on the main board and the second board were able to show that they had never been punished by the exchange, do not have a negative net asset value, had made timely, accurate quarterly and annual reports, had given notice of important events affecting the value of the stock, and in general had made an effort to abide by the terms of their listing contract.
This does not reflect well on the other listed companies. The influence of the government ministers has been a negative factor. Board members are chosen by acquaintance and political affiliation rather than for executive talent. Directorships are treated as a form of largesse for which nothing is expected in return. The managers of many large corporations are chosen by the ministers for their willingness to cooperate in questionable projects and the draining off of assets through consultancy contracts to well-connected firms, often owned by the managers themselves.
When will the Malaysian market recover? Perhaps over a period of years it might improve, but substantive improvement is necessary, and the will for that cannot be seen at present. What is certain is that the present situation is one offering little prospect for profit, one which the prudent investor does well to avoid. Buying into a bankrupt system in hopes of a miraculous technical bounce is foolish where there is no underlying value or business plan to pin the hopes on.