Although the economic situation now compares with that of 1993, the last push must come from local retail investors THE recent rally in our local bourse has prompted many seasoned investors, especially those who experienced the super bull run in 1993, to wonder whether the current rally is about to turn into a real bull run. Of course, nobody can tell for sure what will happen next, but we certainly can do some homework, comparing the circumstances back in 1993 against the current situation.
In 1991, Tun Dr Mahathir Mohamad unveiled the philosophy of “Malaysia Incorporated” which was a development strategy for Malaysia to achieve a developed nation by 2020. In the early 1990s, despite slowdown in the global economy, as the third largest economy in South-East Asia, after Indonesia and Thailand, Malaysia was supported by relatively strong macroeconomic fundamentals and resilient financial system. With the real GDP growing at 9.9%, ringgit appreciation, strong export growth and the Government’s measures to hold inflation low at 3.6%, the local stock market became an attractive alternative to foreign investors.
Before 1993, foreign investment in Malaysia was mainly dominated by long-term direct investment in the manufacturing sector. However, as a result of measures taken to develop our domestic equity market, coupled with the strong economic backdrop, we saw a massive influx of foreign capital inflow, which helped fuel the super bull-run in 1993. Within the year, the market increased by 98% to reach an all-time high of 1,275.3 points and foreign investors’ participation accounted for 15% of total trading value of our local bourse. This had also driven the market into a highly speculative one, which lured many retailers into the market, thinking of making fast and easy money.
With the presence of new and unfamiliar players, the market became a huge “casino”. Retail investors bought into stocks based on rumours rather than company fundamentals. Among the hottest topics during that time were the awards of government mega projects, privatisation candidates, sector play and regular news on upward revision of corporate earnings. Examples for the highly speculative stocks were Ekran, Ayer Molek Rubber Co, Berjuntai Tin Dredging and Kramat Tin Dredging.
In 1993, with the economy booming, the Government planned several mega projects, including the KL International Airport (RM8bil), Johor-Singapore Second Link (RM1.6bil) and Kuala Lumpur Light Rail Transit (RM1.1bil). The news of contract awarding immediately sent the market into speculative mood on those potential candidates. Similarly, the news of the Government planning on privatising some of the its own corporations, such as Petronas, KTM and Pos Malaysia had also driven these counters into prime trading targets.
Dreaming: Will the super bull run come?
Besides, the ease of accessing bank credit by investors also contributed to the market rally. We noticed that a high percentage of loans was channelled to broad property sector as well as the purchase of securities.
As a result of massive inflow of foreign funds and the super bull run in stock market, Bank Negara introduced a number of selective capital controls in early 1994 to stabilise the financial system.
Recently, our Prime Minister Datuk Seri Najib Tun Razak unveiled the Economic Transformation Programme (ETP) with the aim to boost our gross national income (GNI) to US$523bil in 2020 from US$188bil in 2009. The programme is to attract investment not only from the Government, but also (more importantly) from domestic direct investment as well as foreign direct investment. In view of strong economic growth, our GDP growth is anticipated to increase by 6% this year.
In September, we notice that there was a net inflow of foreign funds again in our equity market. Over the past few weeks, the average stock market daily volume had been hovering above one billion shares per day. Almost every day, the top 10 highly traded stocks were those speculative stocks with poor fundamentals. In addition, we noticed that some retail investors had started to get excited again in the stock market.
According to Andrew Sheng in his book titled
From Asian To Global Financial Crisis, there were two main indicators to irrational exuberance during the super bull run in 1993. The first was the
amah (domestic maid) syndrome. We need to be careful when
amahs got excited about the stock market. This was because they did not know what they were buying and would always be the last to sell. The second indicator was when businessmen began to speculate stocks in the stock market. This was because they might neglect their businesses and use some of their cash for speculation.
Comparing our current market situation with the 1993 bull run, there are certain similarities that we see, such as strong economic growth, ringgit appreciation, inflow of foreign capital and ease of credit. However, our local retailer participation is yet to get boiling, which may be the last push factor towards the bull run. Hence, once the participation of the local investors starts to get heated up, together with more inflow of foreign fund, that may be the signs of the market heading for a ‘mini’ super bull run.
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Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.
M'sian market set for a mini-bull run this week?
By Danny Yap, Starbiz 8/11/2010
PETALING JAYA: The FBM KLCI, which has generally been on the upward trend, albeit slowly, is expected to test the 1,524.69 mark in the weeks ahead.
Analysts say it is not the case of “if” but “when” the it will pass this mark, but chances are slim that it will happen this coming week.
An analyst with K&N Kenanga said much of the good news on the government initiatives, including the Economic Transformation Programme (ETP) roadmap, had been factored into the stock market.
He said Prime Minister Datuk Seri Najib Tun Razak had said in a CNN interview last Wednesday that a slew of multi-billion ringgit projects would be commencing and that the details of mega projects would be revealed “soon.”
“But any good news is unlikely to be announced in the next few days to spur the market significantly,” said the analyst.
He also said it was noteworthy to point out that 1,524.69 was a significant mark because it was the highest point reached before the global financial meltdown, led by the US sub-prime fallout.
“If and when the FBM KLCI crosses the mark it would technically mean that the Malaysian economy would have recovered from the global financial crisis,” the analyst noted.
The FBM KLCI reached its highest point at 1,524.69 on Jan 14, 2008 and had since been on a slow recovery.
The FBM KLCI created a milestone on Oct 29 when it breached the major 1,500-point psychological mark and had been testing the resistance point at 1,520-1,525 mark ever since.
Another local analyst said when the FBM KLCI surpassed the 1,520-1,525 mark resistance point, it would have strong and positive implications.
She said it would not only signify that the Malaysian economy had fully recovered from the financial crisis, it would likely make Bursa Malaysia a more attractive and stable stock exchange in the region in the eyes of investors, locally and abroad.
“It will be interesting to see the performance of Bursa Malaysia when the FBM KLCI breached this point, going forward,” she said.
She said the next thing to watch was the expected announcement by Najib on the specific projects to be rolled out and implemented under the ETP to stimulate and accelerate the economic growth of the country.
“There should be some exciting times ahead for the stock market, especially for companies that have secured projects under the ETP,” she noted.
The analyst remains optimistic about the stock exchange and the Malaysian economy.
“We have strong economic growth, ringgit appreciation and improved inflow of foreign capital, compared with 2009, and ease of credit. Couple with all these goodies, there’s the ETP projects which will be implemented soon,” she said.
So is the stock market heading for a mini-bull run, perhaps not next week, but in the near future?
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