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Did the Prime Minister's bold stock market prediction cause millions of
losses by Malaysian retail investors?
(Petaling Jaya, Thursday) : The Prime Minister, Datuk Seri Abdullah Ahmad Badawi made a bold prediction that the Kuala Lumpur Composite Index (KLCI) might hit record highs of 1,350 points and strongly encouraged Malaysian retail investors to “push hard” to achieve it on the 19th of February or the 2nd day of the Chinese New Year.
Unlike the 1993 bull run where Malaysian retail investors made up to 70% of the stock market transactions, it has been widely lamented by analysts that retail investors made up no more than 30% of trades. As late as 14th February, it was reported that the “present rally on Bursa Malaysia has been mainly driven by the influx of foreign funds since the fourth quarter last year... retail investors have not returned to the local bourse in a big way.”
However, with the confidence and encouragement publicly expressed by the Prime Minister himself, the “retail participation was back in earnest” from the first day of trading after the Chinese New Year break.
Last Wednesday, the KLCI rose 1.3 percent to 1,278.22 points on a record high volume of 4.7 billion shares traded. The volume was 32.8% higher than the previous high of 3.54 billion shares recorded only the week before. The transaction volume hit another record of 4.78 billion shares on Thursday.
The Star reported that “penny stocks and low-priced warrants saw brisk trading – an indication of retail participation – with the top 10 most active counters clocking a combined volume of more than one billion shares”.
Unfortunately, despite heavy participation by retail investors, the KLCI traded pretty much sideways for the next few days. As reported by analysts quoted by Reuters, Tuesday saw forced selling by stockbroking houses for many retail investors who either purchased stocks on margin accounts. Investors who did not settle their outstanding balance for shares purchased on the previous Wednesday by Monday also suffered the same predicament. As a result, the KLCI shedded 35.79 points or 2.81%, the biggest drop in 5 years.
Yesterday, the KLCI plunged 6 percent at midday, its biggest single session drop in 9 years, as foreign funds cashed out, before subseqently recovering to a 3.28% decline.
Hence it is clear that the biggest losers in the past week has been the Malaysian retail investors who returned to the stock market in earnest after the Prime Minister's bullish encouragement. The losses to the average wage earner in Malaysia would have been immense for in 2 days, more than RM80 billion market capitalisation was wiped off.
The Prime Minister was definitely reckless and irresponsible for making unqualified stock market predictions. In his eagerness to convince the electorate that the economy is extremely rosy in a pre-election year, he has gone overboard causing untold damage to the average investors who are already hit by significantly higher cost of living such as up to 60% rise in toll rates. Will the Prime Minister bear the responsibility for the rakyat's losses?
In fact, the Prime Minister might have single-handedly destroyed the average Malaysians' confidence in the market. To quote OSK Securities research chief Kenny Yee, “our only concern is that the sharp fall would have an effect on retail investors. Some of them entered the market just last week and it is not good to be hit like this.”
Secondly the events of the past 2 days clearly demonstrates the fallacy which the Barisan Nasional (BN) government has been painting. A “booming” stock market is certainly not a good or accurate indicator of the state of the economy.
Just as the 6% fall in the stock market prices over the last two days does not reflect a 6% decline in our economic fortunes, a 30% rise in the stock market prices over the past few months certainly does not represent a significant betterment of the state of our economy. For instance, the past few months certainly did not see a 30% or even a 10% rise in average wages.
This is because there are many other factors which affect the movement of stock market prices, many of which are unrelated to the basic state of our economy. Hence, BN's attempts to equate the high stock prices to a “booming” economy is at best misleading, at worst an outright deception.
Tony Pua ,
Economic Advisor to DAP
, Economic Advisor to DAP Secretary-General