Politicking and the RM210 billion stock wipeout

Fund manager Danny Wong.

PETALING JAYA: While the US and China engage in a trade war which has taken its toll on Bursa Malaysia, the constant politicking and questions about a transfer of power are making things worse, says a fund manager. However, an academician disagrees, saying the market slump is because of fears of a recession.

Since the general election of May 2018, market capitalisation has fallen from RM1.62 trillion on May 9 last year to RM1.41 trillion on Thursday (Aug 29) — a “paper loss” of RM210 billion in capital value.

For the past 15 months, government leaders have been under fire from the opposition, most notably former prime minister Najib Razak, who has repeatedly illustrated the difference between the stock market’s performance during his time and the present.

Fund manager Danny Wong says there is no need yet to panic over the stock market’s performance but believes less politicking and a clearer picture of how the government plans to grow the economy would help.

“Going by the FTSE Bursa Malaysia EMAS Index, which captures the broader market, market capitalisation went down from RM1.62 trillion on May 9, 2018 to RM1.41 trillion on Aug 29, 2019.

“This 13% dip amounts to an RM210 billion loss, but this does not paint an accurate overall picture of the stock market.

“It is mostly the ‘big boys’ who have taken a hit,” said Wong, who is chief executive of Areca Capital.

He said big stocks went down by some 5% but some mid- and small-cap stocks are performing, with some showing increases in value of between 15% and 18%.

The drop in the bigger stocks, he said, also affected fund management institutions because they typically buy shares in such companies.

In the case of big stocks, Wong said that many are either controlled or associated with government-linked companies and changes in their board or leadership in the past year would have a short-term effect on them.

“Also when it comes to external factors, such as an increase in cost or slowdown in business, small or mid-cap companies are less vulnerable.”

The fall in capitalisation is only a “paper loss” as shareholders will only suffer actual losses if they sell their stocks for a lower price than they were bought.

“For big stocks, people usually buy them for the long-haul. For bank stocks, short-term fluctuations don’t matter as people will see them as having the ability to generate revenue and rebound.”

Wong said the US-China trade war has had an impact on perceptions about the economy, as did the constant politicking and question marks over the transfer of power from Prime Minister Dr Mahathir Mohamad to Anwar Ibrahim.

“Will there be a change in leadership and such policies? There is speculation that a telco giant may have to fork out billions as part of the National Fiberisation and Connectivity Plan (NCFP) and this will affect its revenue. Will this change if there is a change in leadership? These are questions investors will have.”

Politicking he said, fuelled uncertainty and this wasn’t good for investors.

“Sometimes, the government wants to implement something and then it can’t because of politicking. Tomorrow, it’s something else that is politicised.”

Wong said the government would also be giving the stock market a boost if it shared its plans to grow the economy.

Stock slump because of fears of a recession, says academic

But economist Barjoyai Bardai has a different view, saying that while politics plays a role in the stock market performance, it isn’t substantial given that the country went through the most radical change in its political scenario with the change of government.

Barjoyai, who is with Universiti Tun Abdul Razak, said he does not believe the market is too concerned about smaller post-GE14 developments compared to external factors like the trade war and a sluggish global economy.

The slump in the Bursa Malaysia, he said, was expected as the country is expecting a recession and usually the stock market will experience a downturn before the overall economy does.

The government, he adds, could come up with a stimulant, like a megaproject, to get the market excited but he doesn’t think it should.

“To me, the government should allow a recession to happen and later let the stock market recover on its own.

“Recessions are a normal part of an economic cycle. The faster we face it, the faster we can recover and the stock market will be the first to recover.”