Valuecap Sdn Bhd as the name implies tries to cap the value of share prices from falling further down from their "real" value ( Cabinet urged to take a stand on Valuecap ).

If the market slides further, not only will a lot of bank loans turn into bad debts, and share collateral value of banks diminish, but a great many state financed and sponsored companies and even unit trusts and their substantial or controlling shareholders will come to grief. So will companies in which political "cronies" have control. There will be quarrel over money ( Ling a liar, alleges Soh ).

There is however a real danger when the government gets directly involved to prop up the KLSE . While it may attract some retail punters cashing in, over the longer run it undermines further confidence in KLSE.

For now greater trading activities and rise in prices is happening only in selected counters. Punters will take advantage of Valuecap's injection of funds by concentrating only on certain blue chips, Umno or government supported companies will cash out the moment money is made, leaving Valuecap to hold positions.

Some would cleverly trade on futures related to index of KLSE rather than the shares. Predictably that's the best bet. Retail and institutional investors are unlikely to buy into the majority of other companies, and confidence in KLSE will not be broadbased.

Conventional wisdom has it that the stock exchange should be allowed to find its own level, and market forces not be interfered with. Over the longer run the government can't fight the market to win.

Confidence in the market is lacking from foreign institutional investors precisely because too many major companies on KLSE are government-linked, and there is no level playing field, especially now with the advent of Valuecap's involvement.

It will be perceived as a major syndicate linked to the government. How does the government try to promote transparency, level playing field, governance in markets when a major player with a 10 billion portfolio is controlled by it? Can one be a regulator and major player of KLSE at the same time without conflict of interest?

The root causes of diffidence in KLSE should be addressed. Although we cannot control external developments such as a war on Iraq, we can do some in other areas like for example the fear of terrorism or perception of the rise of religious extremism here.

Engaging with markets as Lim Kit Siang pointed out in Maminco operation (RM600 million losses), the Makusawa operation (tens of million-ringgit losses incurred by the Employees Provident Fund) and Bank Negara foreign exchange market speculation have not demonstrated that the government could win over markets.

The governments of Hong Kong and Japan had in various occasions in the past tried to prop up Hang Seng and Nikkei without much success. So on what basis can we do better?

There is something wrong in extolling free markets and interfering with it as and when it is felt expedient. The government has always stressed that the share price and share value are different things. If our share price is below real value, let astute investors buy the shares: why should the government come in to intervene especially through tax payers' moneys or hard earned savings of the rakyat through EPF? It is not as if there is a George Soros lurking around to short-sell the market that the government needs to counter by currency control. It is not a parallel situation here.

The very act of intervention erodes confidence because people perceive the market to be so ailing that it requires such a drastic measure. Only desperate times spawn desperate measures. There are other ways to help. Look at the trading and settlement rules of KLSE and see how they can be changed to stimulate investment or trading.

No liquidity in the market does not mean that people have no surplus money to invest. They are just cautious to enter the market because they lose money every time they do so. They are frightened.