Anticipating The General Elections & The Stock Market In Malaysia

I believe all of you would concur with my statement that speculations on the 13^th General Elections date and the local stock market are getting more intense as the country approaches near to the final curtain of 2011. As in my previous commentaries, I am inclined to feel that the two are much related, based on the events that have been reported of late in the news media. I believe you would also concur with me that the mainstream newspapers have been positively playing up news about some latest developments said to have taken place. Allow me to cite a few pertinent ones:

1.      1. The list of goodies and hand-outs to be delivered to the “rakyat” at large, including civil servants, under the 2012 Expenditure Budget announced by the Prime Minister. Commencement of delivery is to begun from now in phases.

2.      2.  Announcements of joint venture investments and the progress of ETP projects like the latest news about the Iskandar development area in Johor, China and Taiwan firms involved in buying assets and equities in recent weeks, and so forth.

3.      3. The announcement that the Government is confident the national GDP growth would end up at 5 per cent in 2011 despite the uncertainties in Europe and US.

4.      4. What came as the latest surprise news to me: The granting of 7 months bonus to PKNS staff by the Selangor state government which is controlled by the opposition component political parties. 

5.      5. The rise of trading in penny stocks, especially by the retails segment, in the local scene up to a few days ago. It was said there was growing speculative interest in penny stocks by retail investors. Securities Commission Chairman Tan Sri Zarinah Anwar, in reaction, advised investors to be cautious because prices of penny stocks had skyrocketed of late without material corporate elements. Why the sudden surge in trading of penny stocks now? Have this to do with the goodies and hand-outs and the impending elections? These are the questions you and I may be keen to find out.

For the benefit of readers who are new to the term penny stock, here is an outline:

·        * A penny stock trades at relatively low price and market capitalization. In Malaysia, the prices of such stocks are below RM1.

·         *Generally considered speculative and of higher risk in view of lack of liquidity and small capitalization.

·         *Generally appealing  to investors who do not have sufficient capital to put into large companies or blue chips, but still wish to try their hand in the stock market.

·        * Due to lesser money invested, the downside loss is minimal. But the potential for upside or gains is higher through appreciation over a period of time.

·        * Not expected to pay dividends on a regular basis, compared to companies with strong fundamental base.

Also allow me to quote some excerpts from two business print media for your reflection.

·         BUSINESS TIMES, NOV. 14, 2011:

-          Meanwhile, ACE Market and penny stocks are likely to continue attracting strong retail participation, with strong expectation of a general election in the first quarter of next year than in the immediate term after the prime minister’s statement last week that it will not be held this year potentially easing concerns about market uncertainty in the immediate term.

·         MALAYSIAN RESERVE, NOV. 14, 2011:

-          The Malaysian equity market is expected to do well as positive economic and business news flow are anticipated in the next few weeks following Prime Minister Datuk Seri Mohd Najib Razak’s recent open statement that the general election (GE) drums have sounded, said an international research firm.

-          The research firm said Najib has dished out bonuses, increments and handouts to civil servants, pensioners and the low income groups, hence, Citi expected more goodies and bad news downplayed to keep the momentum going until Parliament is dissolved.

-          “There would be awards of concessions, major infrastructure contracts and positive  Economic Transformation Programme updates in the coming months through 1Q12,” said Citi, highlighting that these could inject excitement into the market.

-          “In fact, we expect the MRT packages, West Coast Expressway and New Pantai Expressway extension to be awarded within this period.”

-          “There is upcoming listing of Gas Malaysia, newly merged Kencana-Sapura Crest and perhaps, Felda listing, if it is rushed,” said Citi, pointing out that a stock market recovery and resultant positive wealth effect should work to the prime minister’s coalition advantage.”

·         BUSINESS TIMES, NOV. 19, 2011:

-          It’s a crazy market indeed, with even warrants trading almost on par with the mother share.

-          Basically, the retail market is being run by those who are very well versed in finance, and followed by those with minimum knowledge of how finance, valuations and the balance sheet really work.

-          A mixture of greed and lack of know-how means the stock market is being used like a casino.

A friend who is a market follower told me a few days ago that he was considering putting money in some stocks; and if he did, he would go in now and then get off just before the elections take place. This would be short term speculative move, no doubt. He said that in the face of global uncertainties and market volatility still expected to cast their shadows at least for 2012, he preferred not to look at the stock market too far ahead. Probably, investors who have gone into penny stocks of late share the same mental frequency as him??

Happy reflecting!