opinion

The government is apparently in the process of shifting assets and management control of its capital markets from a faction loyal to the ex-finance minister to new control exercised by the prime minister.

The Umno/BN party controls the printed media and television, either through direct control or through a requirement to obtain an annual operating permit. This method of licencing control is now being extended to all business activities in the country.

Such unfriendly intrusion is certain to act as a disincentive to new business, and it gives established firms an excellent reason to relocate.

This unwarranted extension of annual licences threatens free enterprise at all levels. It is another means to facilitate further incursion of political domination of the markets. Interpreted correctly, it means the end of the free enterprise system in Malaysia.

The intrinsic goodwill value of every existing enterprise is now zero, as there can be no further business activity if the government gives notice the licence is not to be renewed. Only the foolhardy would venture into such a milieu.

Unregulated activity

Malaysia has an unusual stock market. It is often offered as an example of free enterprise occurring in Southeast Asia on the model of Western markets scaled down. This is far from a true picture, as any who have personal experience can attest.

The spreads are wider than the door of an airplane hanger, and the necessary correspondence between audited reports and reality is missing.

This is not always entirely the fault of the auditors, though generally they are not blameless. The error lies in the assumption that all market players are fools. The government has an heavy hand in all major industries, arbitrarily changing management according to the level of perceived subservience to political objectives.

The largest companies are under the complete control of the politicians, and though many almost are hopelessly swamped in a sea of debt, the share prices are kept up by fund buying at the behest of and under the direction of the government.

Though the Securities Commission continues to improve in its vigilance, the amount of unregulated activity defies description. The exercise of regulatory authority lacks persuasive vigour.

The stock market is presently brisk in the rearrangement of assets. The volume of shares is artificially elevated to a high level. As a consequence, the KLSE index has moved from a low at the 550 level to around 650.

There is nothing obvious to explain this optimism. Share assets are valued by underlying factors such as earnings, dividends and real property. All of these in the present business climate are declining.

Buying itself back

It appears that the government is intent on buying itself back. To do this, are the savings of the public being squandered? Are the national pension funds being depleted toward this effort? Bonds are being sold worldwide to generate additional purchasing power but will savings be lost to support bankrupt firms?

Once share ownership in a given company exceeds a set percentage, an stock exchange rule requires that a general offer be made for the balance of the shares, but this requirement is easily set aside at the convenience of the government.

Also, whenever purchases by one fund approach this limit, it is an easy matter to shift further purchases to another fund, thus exceeding the limit without generating a requirement to make a general offering for the balance of the shares.

It is difficult to find a rationale for the behaviour of the government, other than the desperate political position of the prime minister, who is under serious criticism for allowing the assets of the Umno party to be taken from under his nose.

In spite of signs the economy is worsening, share values are rising, in total defiance of repeated projections of decreased earnings. To watch this occur on a daily basis provokes foreboding that a time of re-valuation must soon come.

The repayment period will be extended beyond any realistic time. That being the case, the pressure to sell share assets can only increase, and values would fall to a realistic level without the decision to provide artificial support.

A lid on investigations

Because this adjustment is not occurring, the impression is that the market is being manipulated, in a vain effort to attract unwary foreign fund managers. The impression is reinforced by the unwillingness of the government to allow any investigation into various matters.

The report of the investigation into racial killings at a squatter settlement in Petaling Jaya in March is now to be an official secret. An attempt to raise US$5 billion in London using fake bonds of a government agency is well known, as is the unwillingness of the government to press charges against the perpetrators.

The scheme is alleged to have originated 'at the top'. This incident has placed a dark cloud over the Malaysian bond market. Since it is the government which is the backer of most of the bonds issued in Malaysia, this is a serious matter, and has caused the country to lose credibility.

When the market rises to reach a plateau, generally on excessively high volume, it indicates either a renewed interest by the investing public or manipulation. At the moment the market continues higher than normal volume, though it rises no further.

This daily process, known as churning, indicates shares are moving from strong hands to weak hands, in preparation for a withdrawal of support and a market fall.

This up-and-down motion functions much as a pump, offering buyers who are locked into losing positions an opportunity to slowly work their way to a profit. This is done at the expense of the unwary, who tend to become enthusiastic after a rally, buy at the top and hold, hoping against hope as they stand paralysed, watching the market fall. Finally, filled with fear, they sell at the bottom.

The sheared tend to be the public, those citizens, employees, consumers who contribute, voluntarily and involuntarily, to the public and union pension funds. They are growing wiser, slowly but surely, and with this increasing awareness comes a determination.

HARUN RASHID is a scientist avidly interested in the application of Islamic principles in international affairs. The promotion of goodwill through civilisational dialogue motivates his writing. His Worldview column is a personal analysis of Malaysian affairs from a global perspective.