We have had more than 30 days of straight net selling by foreign holders of local shares. Thankfully we started falling way before the "across the board selling over fears of contagion with respect to emerging markets".
I would be the first to say that we should stomach some short-term pain on our shareholdings, just to have a change in government. It is easily worth the price. The rectification of past mismanagement will take some time. So where are we now?
What started off in Turkey, Argentina and to a lesser extent Italy... has somehow steamrolled to include Vietnam, Indonesia, the Phillippines and Hungary. To a much lesser extent, Malaysia and Thailand also were hit - thankfully it was muted at best.
Causes: a) fears of emerging markets debt contagion; b) the developed countries kept interest rates low following 2008 to revive their battered economies, flight of capital went to developing nations seeking better returns - now that pendulum has shifted thanks to the "trade wars" and the US raising interest rates (an indication of a stronger domestic economy and inflationary pressures)
1998 Asian Financial Crisis Revisited: The bulk of Asian emerging markets have much better debt levels now, and should not see a repeat of 1998, the ingredients are not there.
Real Issues: The reality which will continue to hit hard will include Turkey, Argentina, Hungary, Brazil, Indonesia, India, and Italy (the last five will be less severe but still shaky). Weak governance and high dollar debt will be the undoing factors.
China: China markets have also been rolled, thanks to the silly trade war started by the irresponsible and naive Trump. China also was grappling to slow credit growth and chomp down on "high flying big state link GLCs buying big overseas as if there were no tomorrow".
Our case is quite different. The local bourse has fallen in sympathy with the emerging markets rationalization but is affected by quite a different set of factors.
The Problems: We are in the midst of "house-cleaning", while we are quite prepared to be patient, a few things are noteworthy.
a) Removing of GLC CEOs and other BN appointees from important government positions - While I wholeheartedly support this, it also hampers all these affected GLCs to "move" or carry out projects. Nobody dares to negotiate contracts as the situation at the top is still fluid. This has to be managed FAST and QUICK. The longer we carry out this bloodletting, the longer the downtrend of the market will be. There is a very low-velocity number in the current velocity of money.
b) Tainted Companies - Those not in the GLCs bracket but 'tainted' listed companies are affected as well. Quite a number of these company owners are currently hiding in overseas waiting for the dust to settle. When the owners are not around and their fate so uncertain, these companies will do as little as possible.
c) Clean Listed Companies - They may not need to hide but since nothing is moving at the government level, it also meant the wheels of economic activity also grinds to a halt.
Our PM and the Council of Elders must put in their strategy and action plan to work fast. More so when it comes to Malaysia because our country is highly dependent on the stock market as a major catalyst for domestic economic activity. Malaysia has one of the highest percentages of GDP that is listed on the stock market (over 75% by guesstimate) - that translates to a high correlation for market activity with the real economy.
#1 Catalyst - There is no doubt that the #1 potential catalyst for a revival in the local bourse has to be the "arrest of the top perpetrators responsible for the malaise, the demise, and mismanagement of government resources".
Is the delay due to the need to review and repeal the decision by the Federal Court which decided that the PM, cabinet ministers, AG, Menter Besars, and such persons are not public servants ... but that they come under the limb of "members of the administration"... and as such they are not liable for misfeasance, nonfeasance and malfeasance ... and any other related offences during their term.
If so, let's expedite the matter.