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.