Wednesday, October 22, 2008

A Word Of Caution For The New Finance Minister

Hantu Laut

The government proposal to borrow from EPF to prop up the bearish KLSE may not be a good idea in view of the global economic uncertainty.Trading on the KLSE should be left to market forces.If the economy is as strong as the government have said umpteen times than its plan to intervene in the stocks market contradicts what it has been saying all this while.

Puting more money to help what it called laggard blue-chips stocks could end up good money chasing bad money.Such exercise will only invite the vultures to come back for the final killing.

If the government think RM5 billion is enough to prop the market and makes it look attractive to investors it would be in for a big shock when the the combined forces of the hedge funds decide to descend on the KLSE and raid the market , unless the government intend to lock up the shares bought by Valuecap, which would defeat the very purpose it was for, to create a bullish market. It would be back to square one, a lacklustre KLSE or money down the drain.

How the government wish to borrow from the EPF and on what terms, the Finance Minister had not made clear.The Board of EPF should not agree to giving loan to the government on private basis.The Board of Directors are trustees of the members of EPF and should work in the interest of the owners of the funds.

The most appropriate thing to do would be for the government to issue short-term bonds to EPF at higher yield than those of its normal bonds.The government should pay according to the rate of dividend currently paid to EPF holders.To pay anything less is unfair to EPF holders as the designated amount would have lost its opportunity cost.

Saving banks are one thing, saving a bad stocks market with the people's pension funds is not exactly prudent financial planning and not only does not make any economic sense, it does not make any sense at all.

Just a word of caution to the new Finance Minister to think over the negative side of the proposal. It is not too late to ditch the idea.

8 comments:

Anonymous said...

A very sound advice indeed.

Anonymous said...

Valuecap was set up many moons ago when the share prices was low and heading no where. They bought into the market some quality shares (malaysian standard), and held through until today.

My question is, from the initial RM5b invested, by the end of 2007, this initial investment by conservative estimation would have worth RM15b, So, why didn't Valuecap sell its position syetematically and realised the gain ?

The RM15b would be a 300% gain and will be a good seed money for market environment like this. Instead, they now have to take another loan from EPF ?

Jed Yoong said...

Hi Hantu

Maybe the new FM via CIMB, bro's bank, will be the biggest "raiders"? Will they make loads in fee from stockbroking or "corporate restructuring"?

Khalid says the sel govt is renationalising Syabas..Good idea?

I dun play stock market, so staying sane...

donplaypuks® said...

Anonymous

If 1 had a crystal ball 1 could but low and sell at the peak.

But long-term hold means 10-20 years and not engaging in daily trade.E.g., if you bought1 lot of Public Bank shares 20 years ago, that would be worth $1 million or more today taking into account dividends and bonus/rights shares.

Even in 1998, HK GOVt bought some $30 billion of blue chip shares and within 2 years or so, made a whopping profit.

Thus when we are living in dangerous and unpredictable times, there is nothing wrong in the Govt coming to the rescue. That's what it is there for.

And do remmeber that it is a loan from EPF and not EPF investing in Valuecap or directly in the market. Valuecap is owned all by Govt bodies and so the loan is safe.

What's missing is the interest rate EPF will be charging. Why was the Minister silent on thsi?
http://donplaypuks.blogspot.com

Hantu Laut said...

anonymous12.18
Your guess as good as mine where that money gone to.That have lost some of it by diminution of value of the shares when the market came down.

They could have liquidated some and the money gone into the government coffers.

EPF is the richest cow so taking RM5 billion is a drop in the ocean.Of course I believe the government would have no problem to pay back EPF.

It is not the money, I think the principle is wrong.There is no need to prop up those blue-chip shares,unless there are other agenda that we wouldn't know of.

Hantu Laut said...

jed,
Good girl.You wouldn't get burn for sure.

Well, I wonder where that advice come from ?

uzbek65@yahoo.com said...

Good analysis HL..

I am of the opinion that Governments shouldnt interfere in financial markets. We have burnt our fingers before in forex intervention.

Those big players dont need govt to prop of their share prices. Lower price does offer them interesting possibilities too namely buy back stocks and gaining new profile of buyers.

Uzbek

SM said...

HL,

As you said, they are playing with our hard-earned savings!
No excuses to touch that, especially without "our" approval!
For many Malaysians their EPF will be the ONLY "savings" they have for their retiremnet.
EPF should be investing wisely so that they make MAXIMUM profits. That way not only EPF benefits, but the people & the Government also benefits.
Let's look at the year end Bonus that EPF will pay out...I bet you it's going to be miserable!
But as I said many times before, who's going to stop the BN from doing what it wants? And now Mr. new FM aka future PM is in charge! Who's going to stop him?!
Certainly not the Opposition & certainly the Rakyat!