Obviously you should refrain yourself from thinking, let alone committing more money investing stocks related to stock-broking i.e. the stock-brokers or investment banks that are listed in the KLSE (Kuala Lumpur Stock Exchange) – at least temporarily. Stock-brokers business is primarily depend on daily transaction volume. The more the merrier so when the daily volume exceeded the 1 billion mark these listed companies rejoiced. When the stock exchange recorded less than the mentioned figure, almost all the stock-brokers’ stock prices plunged. And the cycle continues.
Unless the stock-brokers are diversifed such as TA Enterprises Berhad which was forced to venture into property development and investment during the bearish market in order to survive, they who rely solely on stockbroking business as their bread and butter would see the immediate pinch of any slowdown. Others such as OSK Holdings Berhad (KLSE: OSK, stock-code 5053), K & N Kenanga Holdings Berhad (KLSE: KENANGA, stock-code 6483) and Hwang-DBS (M) Berhad (KLSE: HDBS, stock-code 6688) have shown weakness in their stock prices since the first quarter run-up.
Of course the year 2007 has been kind to all the stock-brokers with the mini-bull (I still think it’s a miniature one compare to the 1993 Super Bull as the current bull is not broad-based) sniffing around compare to previous year. But if you look at the monthly shares transaction (diagram above) from Jan 2007 till today (the Dec’s volume is not complete in the diagram above), you should be able to notice the downtrend. No doubt since the 1997-1998 Asia Crisis, some of the stockbrokers have diversified such as TA Enterprises. In fact TA Enterprise perhaps is the most diversified stockbroker which ventures into the property arena, during the period when the owner, Tony Tiah, took the back-seat hibernating leaving the enterprise to his wife, Alicia Tiah.
Nevertheless stockbroking is still the main revenue generator to TA, with total revenue combined from property investment, property development and hotel operations couldn’t even breach (though the figure comes pretty close) the revenue from stockbroking alone, judging from the consolidated income for the fiancial quarter ended 31 Oct 2007. Brokerage fees which constitute the bulk of the income from daily transaction volume still play the vital part. Hence can you imagine the direct impact to broker house(s) that survives mainly from such fees?
So who can you blame if you blindly bought such stocks thinking the quarterly earnings would grow exponentially (forever)? Hmmm, there must be something terribly wrong with the whole picture. The KLCI (Kuala Lumpur Composite Index) is of all time high, even higher than the 1993 Super Bull-Run. The daily transaction volume on certain day definitely put the 1993’s bull to shame. But somehow the bullishness wasn’t broad-based. So what went wrong?
Could the current bull (if you insist on calling it so) signal a new trend in, well, bull in Malaysia stock market such that people are smart and mature enough not to chase non-bluechips? Or could the new trend simply means the previous 1993’s way of pushing stock prices 10 or 20 times higher is already history? Maybe there’s a co-relation between US equity markets with Malaysia’s bull – so much so that the local and foreign hands are as quick as US traders in dumping the stocks the moment crisis such as sub-prime exploded.
Malaysia’s Bank Negara (Central Bank) might have taken the easy route by maintaining the interest rate, despite US Feds’ multiple cuts, hoping the wide-gap would force foreign fund managers to park their hot money in Malaysia. However that doesn’t means the foreign money can’t find other alternatives. Without external hot money, the government can only depends on retail investors. Unless the current administration knows how to bring back the economy from its feet, retailers might think twice about committing more resources which in turn will depress the stock-brokers even further.