Going by normal circumstances, Malaysia stock market should have staged a gap-up post-election but the reverse happened when the KLCI (Kuala Lumpur Stock Exchange) gap-down instead by more than 130 points or more than 10 percent (investors who short the futures were smiling from ear to ear). Foreign as well as local boys were running helter skelter selling like crazy and searching for safety belt. The bear that didn’t eat for 50 years was suddenly out of the cage. I’ve wrote about the general election result’s effect on local stock market and also why the stocks are still gloomy, not to mention the possible of second tsunami that could blow your head off.

The writing is on the wall – the local stock market is at its weakest point, so much so that it doesn’t needs a rocket scientist to predict the market direction. If you really need to know, tomorrow Friday, 21 Mar 2008, will be another sell-off day. Yeah right, I knew it because the Dow plunged 293 points after Wednesday closing. But that’s Wednesday and Thursday’s market (Dow) has not open yet (as of writing). It’s simple, when the Dow shot up 420 points after the Feds interest cut, the KLCI moved very little. Even if Dow reclaims the 290 points lost by end of trading today (Thursday), do you think the KLCI would stage a remarkable recovery? That’s not all.

KLSE has entered new bearish direction

In actual fact the Kuala Lumpur Stock Exchange (KLSE) is following a new pattern inline with the sudden changes in the political landscape. Foreign research houses Merrill Lynch & Co., Inc. (NYSE: MER, stock), Citigroup Inc. (NYSE: C, stock) and CLSA Asia Pacific are recommending a “SELL” on shares of stock exchange operator Bursa Malaysia Berhad (KLSE: BURSA, stock-code 1818). What was surprising was the fair value given by Merrill Lynch – a pathetic RM5.00 a share although Citigroup and CLSA were more generous with their RM7.08 and RM8.00 respectively. Merrill said the fair value was based on the reason that falling trading velocity and lower clearing fees are expected to affect Bursa’s earnings this year.

Cool, the new clearing fees was announced during the 2008 Budget on Sept 2007 which took effect from Jan 2008 and now all of a sudden these foreign research houses who possess top-brains are calling “SELL”? Get real, these foreigners are not stupid. They know the actual geo-political situation and the new risks associate with it. You don’t think they pay top salaries for their risk-management division for nothing do you? If you still do not know how these foreign investors play the game then you’re one of the suckers they would like to befriend with very much. These people will hit the “Sell” or “Buy” button before you can even blink your eyes and if they’ve a slight emotion not to do so, their system will do it for them – period.

Foreign Investors just “Wait and See”

Although late (10-days after the election), I’m glad Business Times finally publish the article that investors are adopting “wait and see” approach in Penang. Henry Butcher Malaysia said if the new state government implements the ‘transparency and fair to all’ administrative strategy, it may create more market confidence. Heck, in fact not only property or construction stocks should be downgraded but almost any sectors listed inclusive of utility, transportation, financial, telecommunications or even plantation to certain extent.

You can paint as rosy as you like but foreign investors, researchers and analysts do not rely purely on local pro-government printing and electronic media as their source of information. While these professionals recognize the influence and power of internet and therefore bloggers, the stone-age Malaysia government was and still thinks they could control the mindset of younger generation with the pathetic bias reporting methodology. Just ask Steve Jobs how a blog knocked off $4 billion off Apple Inc.’s (Nasdaq: AAPL, stock) market capitalization on May 16th 2007. And to have a Minister who accused bloggers as ‘liars’ and ‘mostly jobless women’. Interestingly these same bloggers were the same people who contributed to the downfall of the government (National Front) in securing their two-third majority, not to mention additional four industrial states to the opposition parties.

Foreigners know Badawi’s instability and Risks

Now, what are the things that these foreigners had read that gotten them so worry? Forget about the so-called Cabinet revamp as it was purely a temporarily measure by Abdullah Badawi to prolong his tenure. It was a strategy to pull as many supporters to his side while booting as many threats out of his sight as possible. It’s Armageddon – either the PM survived or perished into the history as the weakest PM ever produced. By know you should know that there could be another wave of tsunami and if it really takes off, the political and business landscape will change again. Whether it’s for the better or worse will depends on who will be the winner.

Former Deputy Prime Minister who architected the first tsunami, Anwar Ibrahim, has hinted PM Abdullah Badawi that he’s moving toward forming new government claiming that coalition MPs (Member of Parliament) from Sabah and Sarawak had contacted him to discuss switching sides but Badawi is calling Anwar’s bluff. Iron Lady Rafidah Aziz was dropped and she almost quit bringing down with her the seat she won, not before accusing her beloved deputy of back-stabbing her. Abdullah’s own UMNO secretary-general has resigned. Two candidates refused to accept Deputy Minister’s post offered by Abdullah. Former Selangor Menteri Besar (Chief Minister) has quit.

Anwar and Razaleigh racing against time

The veteran UMNO leader Tengku Razaleigh Hamzah has offered himself to take over the top post from Abdullah. But the PM refused to hear that his government is about to be toppled but yet he sent spies all over the nation hunting down on members who might be “crossing over”. And if the latest update from Malaysiakini is reliable, it appears the first sign of defection could be on the horizon when Richard Riot has resigned from his party after being snubbed over a cabinet post. Despite winning 24 percent of the total 222 Parliament seats or 38 percent of National Front’s 140 winning seats, people from Sabah and Sarawak was given chicken-feed number of Ministryship, not to mention all the posts given are pathetically unimportant.

As if the lucky stars are smiling at Anwar, he just needs to promise a fairer power-sharing with Sabahan and Sarawakian, and the power would comes crumbling before Abdullah Badawi could wake up from his slumber. There’re speculations that Tengku Razaleigh is rushing against time to reach the throne before Anwar could step his foot but then Razaleigh’s agenda is still to protect the obsolete UMNO and its bias NEP (New Economic Policy) policy while Anwar is promising a fairer MEA (Malaysian Economic Agenda). Forget about the dictator Mahathir in wanting Abdullah to step down because his objective is purely personal.

This is precisely what the foreign investors are reading and it’s not a smart move to have positions in the local stock market now knowing that the landscape will most probably changes again. There’s already speculation that Abdullah Badawi may not last till Aug 2008, the UMNO election, but instead could be facing the embarrassment of being voted out via a “vote of no confidence” when Parliament convenes on 5th may 2008. It’s all about who gets the highest number of supporters if the motion go through and in this case the 112 magic number – the simple majority to form the government.

Other Articles That May Interest You …

• The Good, the Bad, the Ugly and the Hero
• Second Tsunami – Anwar to form the next Government?
• Stocks still gloomy as tension runs and Lim slams PM
• Stocks to remain volatile, political landscape is instable
• General Election’s effect on local Stock Market
• BN lost 5 states and two third Majority – Badawi resigns?

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March 20th, 2008 by financetwitter

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