Anything Wrong With This Picture?

Credit Suisse is organising its annual Asian Investment Conference on March 22-24 in HK. Let's see if you can suss anything wrong with that.

Keynote Speakers

Keynote Speakers (listed in order of appearance)

• Kamal Nath, Minister for Road Transport and Highways, India
• Korn Chatikavanij, Finance Minister of Thailand
• Martin Feldstein, George F. Baker Professor of Economics, Harvard University, President Emeritus of the US National Bureau of Economic Research and member of the US President's Economic Recovery Advisory Board
• Laura D’Andrea Tyson, Dean, Haas School of Business, University of California at Berkeley and member of the US President's Economic Recovery Advisory Board
• Dato' Sri Najib Razak, Prime Minister, Malaysia
• Norman T.L. Chan, Chief Executive, Hong Kong Monetary Authority
• Eisuke Sakakibara, Former Vice Minister of Finance for International Affairs, Japan; Professor of Economics, Waseda University
• Zhu Min, Deputy Governor, People's Bank of China

See anything there yet? OK, let me throw in another fact, what if the country head of CS Malaysia has been giving out as gifts to all intending participants (mostly institutional fund managers) Barry Wain's The Malaysian Maverick: Mahathir Mohammad, which was and still is banned in Malaysia. Do any of you see anything wrong with this picture?

None... well, what if I tell you that the PM is expected to address the Invest Malaysia conference in KL at the end of March, one that is "government sanctioned" and involved Bursa Malaysia, Nomura and Maybank as main organisers. The event is "supposed to see our PM launch and address the new economic model. Anything wrong with this picture?

I have a few queries:

a) Why is our PM there to meet fund managers? I shake my head. I don't see other heads of state meeting fund mangers. This is so obviously NOT the PM's decision, obviously he has been ill advised. Do we REALLY need foreign funds that badly??? Do you think Singapore's PM will EVER meet fund managers at a conference??? It is a bit embarrassing, really. I am sure there are bigger fish to fry, why even bother, its just index stocks we are talking about. Foreign funds will come in when its cheap, they will leave when its not. There is no need to court them. We all know why they are not in Malaysian stocks, and meeting them will not do the trick - but doing the "other important stuff" will change perception.

b) Why is CS giving out a banned book to the intending participants? Is it to say that "yea, Malaysia is ok with everything, I can invite the Malaysian PM, and still give you guys the book that is banned in the country AT THE SAME TIME". I do not like Mahathir one bit, but if the book is banned in my country, and if I am the PM, you should not really throw this in my face. Maybe the country head thinks he knows Malaysian politics and sensitivities better than I do, I don't know. Let me give you a better metaphor, assume that I am Muslim Chinese, and you invite me to your house as main celebrity guest and speaker, and you serve pork as the main dish ... I am not debating whether the book should or should not be banned (personally I think the book should be allowed in), but how we are treated and regarded. If I am a devout Muslim Chinese and you invite me to your house as the main speaker and guest of honour, you should not have Victoria Secret models dancing and singing just before my speech. Wakarimastaka?

c) The PM was obviously ill advised because you have a more important date at the end of the month. From the grapevine, members of the Invest Malaysia committee have put their case to the PM and asked him not to go, but somebody else more 'powderful' said its better to go. Its like I directed and produced Avatar, a pure all Malaysian made movie and the grand premiere is end of March in KL, ... suddenly I am also doing another premiere in HK??!!! Who is going to attend the KL event? Will the PM be touching on the new economic model speech? I am sure he will be asked to anyway in private - why preempt the announcement? Even if you are not going to talk about the new economic model, why even talk about "Malaysian investing" at all a week before the big launch and big speech?

Below was my posting on how we "inflate" the value and perceived "attractions" in having foreign funds in our markets. Unless they are long term PDI in to build factories and reate jobs and industries, anything else is short term in nature, be it 6 weeks or 6 years even. Think again people ...

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Saturday, August 23, 2008

Foreign Funds, Buy Me Please!

What is this fixation among some Malaysians that foreign funds must/should buy Malaysian stocks? Is it a self-esteem issue? That somehow “they love us more” if they buy? And if they don’t, it means “we are not worthy”? Please lose the pre-independence, second-class citizenry, developing country mentality.

A stock market is just a structure where shares are bought and sold. Whether foreign funds come in or not does not mean we are running companies with “world’s best practices/standards” or that we are making strong strides in the respective industry’s competitive landscape. No, it does not mean that at all.

Funds will flow to places where they can make money, be it Vietnam, Indonesia, South Africa, China, Turkey, Egypt, etc. I doubt many of these markets are practising “world’s best practices/standards”, or have credible market openness or strong liquidity.

People buy stocks that they think are going to give good returns. Even if we have very good companies, people may not buy because we may be overvalued already.

There are tons of options for the global investors, and the Malaysian market is just a little thing.

Get over yourself. Do you know how big the Malaysian stock market is? Take any one of the top 10 market cap stocks in the US and you will see that it is bigger than the total market cap of all 1,000-odd companies listed in Malaysia. As a matter of fact, foreign funds ignoring smaller markets can be perceived as a good thing!

Foreign investors will only invest if they think they can make money. If they cannot, maybe the Malaysian stock market is fully valued or overvalued. Or it could mean that the local funds/institutions and local private investors have snapped up all bargains — leaving no room for the good stocks to be “undervalued”.

We could also argue that when foreign funds and research houses issue a Buy on a certain country, it’s because the local funds/institutions and local private investors are not savvy enough to pick up undervalued stocks. So which is which? Do you want a back-handed compliment?

Attracting more foreign funds is not so straight forward. Do you work it out based on a percentage of the market? What level would we be comfortable with? If foreign funds own 10% of the market cap of Bursa Malaysia, is that too low? What about 30%? Too high? Should we put in protectionist policies then?

We don’t even know where our “comfort level” is, and what should be our strategy? So why even bother trying to attract them?

Too often, we are just reactionary in our policy making. We see an issue and we address it, but without proper thinking and strategising over the big picture. And then when it hit road bumps, we react with more policies! But why are we doing this in the first place?

Let’s look at the stocks with the largest foreign shareholdings (as a percentage of the company’s shares):

Public Bank Bhd 11%, IOI Corp Bhd 9.4%, Bumiputra-Commerce Holdings Bhd 9.1%, Sime Darby Bhd 8.4%, Genting Bhd 7%, Tenaga Nasional Bhd 6.4%, Resorts World Bhd 5.3%, Malayan Banking Bhd 5.2%, DiGi.Com Bhd 3.4%, Kuala Lumpur Kepong Bhd 2.8%, AMMB Holdings Bhd 2.7%, Telekom Malaysia Bhd 2.5%, and Gamuda Bhd 2.5%.

I don’t know about you but from the list it appears that foreign funds have basically been exiting a lot of their usual positions. Sime Darby and IOI’s levels may be even lower now following the CPO (crude palm oil) sell off over the last three weeks.

On another point, some companies may not really have foreign investors.

The foreign shareholders may actually be the same family-controlled holdings based in some tax-free island.

When its cheap enough, foreign funds will come back. At the end of the day, foreign funds will gravitate to where there is money to be made. If you have more big cap stocks, it will allow them better liquidity as they can move in and out with size.

If you make your currency fully transactable and convertible globally, that’s good too. If you stop making ad hoc rules that limit the flow of capital, that would be very good as well. If minority shareholders’ interests are aggressively protected by the courts, that would be splendid.

If the regulators are swift to prosecute wrongdoers in listed companies, it improves the integrity and confidence in the market place among investors. If you can find ways to create more free float, that would be good as well. These are measures the regulators should address and constantly improve on — not because they will encourage foreign funds to invest, but because you have to, so as to get closer to world-class standards for the Malaysian exchange.

Foreign funds are not always right. Their presence does not necessarily mean we are doing well economically. Their presence could be inflating values as well. Foreign funds are just as likely to make huge losses.

It is a good thing to compare our performance with other markets to improve our ways, but don’t get emotional about it. They are just stock prices, not the price of your dignity or the price of our children.

Get a better perspective. True worth comes from knowing who we are. We do not need someone from outside to tell us that today we are just RM1.56 or that the next day, we are worth just RM1.10!

Don’t worry about how much foreign funds there are in our markets. Don’t worry about whether they like our markets or not.

We need to build good companies. We need to build great companies. We need to build solid corporate governance and integrity. We need to build and instill professionalism among the regulators, senior management and board of directors.

Just like in the Kevin Costner movie, Field of Dreams: If you build, they will come. But build not to please the foreign funds or to have better market velocity. Do it because that’s the right thing to aspire to for the benefit of shareholders.

p/s photos: Akumsiri Suwansook

Posted in: Asian Investment Conference,Credit Suisse,foreign funds