Thursday, April 19, 2007

Unbridled feel good factor could be our downfall

Today's Capital Talk by iCapital Bhd published in The Star (page B9, Starbiz,) is a good read.

It warns us that if the current "feel good" factor, fueled no less by our stock market rally, leads to complacency in restructuring our society to meet the challenges of remaining competitive, much grief will visit upon us when the bull runs out of steam, as it surely will in due course.

... With the KLCI now rallying, i Capital is deeply worried that our world-class complacency would become universe-class. As it rallies, the politicians and policymakers are patting themselves on the back for a job well done.

Such self-praise and complacency can be very infectious and soon Malaysians from all walks would fall into the same mental trap.

A few rounds of such crises, and Malaysia would sink into an economic quicksand. Then, the next crisis will hit us when we are totally unprepared.

I think one should read the article in full in order to appreciate the arguments put forth by the writer. As such, I am re-producing it below for those who are interested to read it further.

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Market rally no excuse to be complacent

Since the lows set in June 2006, the KL Composite Index (KLCI) has risen rather impressively and the volume traded has not been that bad either.

It looks like the KLCI will be beating Bangkok for once, although we have lost to the Singapore or Jakarta markets.

But should we exploit the current market rally or should we be more circumspect?

Stock market rallies can be very ego boosting. A rally seems to tell the whole world that everything is fine with the economy and that the Government has adopted the right policies.

Generally speaking, this is true but the stock market rallies for all kinds of reasons and sometimes, it can be self-deluding.

Or worse, the rally creates complacency among the politicians and policymakers so much so that painful but necessary decisions are not made or postponed until it is too late. Then, the market crashes.

The Asian crisis in 1997/98 is a classic example of how stock market rallies can camouflage structural problems until the day of reckoning.

The way to manage a country or company is, in a sense, very simple. When things are fine, do not become over-confident; instead get ready for the storm ahead. So when the storm comes, which it eventually will, one will not be so devastated that one cannot even recover or that the recovery takes a long time.

Vice-versa, when the storm does come, do not panic and rush into making all kinds of silly short-term decisions that would harm the country or company. It will eventually pass and the whole cycle repeats itself. Take advantage of the storms and use them to ensure that the eventual bright sunny days are not so blinding.

i Capital has frequently criticised the Malaysian government for the measures it took in response to the 1997/98 Asian crisis.

The essence of its criticisms was that the Government’s very short-term measures greatly reduced or attempted to reduce the pain of the crisis, but in so doing, it ignored the adverse long-term implications of its actions and decisions.

In many respects, Malaysia has paid a heavy price for this and is still paying the price for ignoring long-term problems.

By shielding Malaysians from the harsh and painful realities of the market economy, we now have a Malaysian workforce that is hopelessly complacent and in the process, losing out to the many fast rising regional competitors.

With the KLCI now rallying, i Capital is deeply worried that our world-class complacency would become universe-class. As it rallies, the politicians and policymakers are patting themselves on the back for a job well done.

Such self-praise and complacency can be very infectious and soon Malaysians from all walks would fall into the same mental trap. Then, the next crisis will hit us when we are totally unprepared.

A few rounds of such crises, and Malaysia would sink into an economic quicksand.

The simple but wholesome message of this week’s analysis is directed at the politicians and policymakers and Malaysians from all walks of life.

Do not be seduced by the current market rally into thinking that we are on our way to developed status.

Do not postpone the major structural reforms needed. Malaysia has already lost so much time.

The unemployment rate in Hong Kong shot up when the Asian crisis struck.

In contrast, the unemployment situation in Malaysia, thanks to the drug addiction-like economic policies that had been implemented back then, was never as severe as Hong Kong’s or the other Asian countries’.

Except for a few debt-ridden and badly managed Malaysian companies, Malaysians generally never suffered any pain during the Asian crisis.

In 2002, we were pleasantly shocked at the totally changed attitude of the Hong Kong people. The infamously rude Hong Kong taxi drivers or the world-renowned rude waiters were offering their services at Ritz-Carlton-class quality.

The Hong Kong economy had been severely affected and its people shell-shocked at the severity of the crisis. Imagine buying Hong Kong properties and losing their pants.

At that time, we thought that the change in attitude would be short-lived. But lo and behold, four or five years later, the same polite and courteous service is maintained, although the economy has recovered and is performing better than Malaysia’s.

The pain and shock of the Asian crisis have left a deep scar among the Hong Kong people.

In contrast, the Malaysian taxi drivers, a representation of the typical Malaysian, are still offering the same lousy service at inflated prices.

Thanks to our brilliantly thought out economic policies, Malaysians do not have to deal with the harsh realities, yet they want to enjoy the fruit of hard work (especially if it is somebody else’s).

Malaysians have no ugly scars to remind them that when things are fine, is the time to take painful but necessary reforms. While others have had to “eat bitter fruit”, Malaysians had only been exposed to the sweet ones.

Adversities like the Asian crisis have a major role in shaping positive attitudes and mindsets.

Malaysian politicians and policymakers must allow such character forming events to play their roles.

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(Note: This blogger is NOT associated to i Capital Bhd nor have any dealings, whether personal or professional, with any of its employees.)




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9 Comments:

Blogger zewt said...

the more feel good factor there is... the more likely an snap election will happen... i guess.

will the ppl be blinded this time? hmmmm

19/4/07 21:14  
Blogger Anak Merdeka said...

I doubt blindness is the main reason why BN gets re-elected to power again & again, Zewt.

Rather, Malaysians have developed a "powerless mentality" agst these bullies who continue to use public funds as a means to hold the rakyat to ransom.

Btw, I want to share with you what a former BN state assemblyman had to say about the upcoming Ijok by-election.

He said that the only possible hope for PKR to overcome the huge BN machinery is to appeal to the Ijok voters to give him a chance - just whatever period is left btw now and the next General Election to convince them that Khalid CAN bring about positive changes to this small town.

Ijok voters must also be convinced to use this window of opportunity to show their displeasure to BN for the neglect they had to suffer under the previous BN reps.

If PKR can convince Ijok voters they have nothing to lose by voting for Khalid, perhaps all is not lost.

20/4/07 12:20  
Blogger Maverick SM said...

In reality, our stock market is still lacking behind the regional bourses if we are to analyze the uptrend over a period since 1998.

However, it looks like we are currently in a bubble state and deep correction will take place before a readjustment.

20/4/07 14:17  
Blogger Anak Merdeka said...

Mave, I'd still like to wait a while before I take my profit though. :-)

20/4/07 14:47  
Blogger H J Angus said...

cik amoi
A good time to take profit is sometime after the GE is announced as I expect the results may be more uncertain this time.

We will start worrying one year before the oil runs out.

20/4/07 22:53  
Blogger Anak Merdeka said...

Thanks for the tip HJ! If I get my timing right, I can laugh all the way to the bank without having to sell my soul to BN. :-D

20/4/07 23:17  
Blogger zewt said...

the thing is... most ppl are contended with just nice paved roads and more street lights... in a way, it's contentment. on the other hand... it's not being able to foresee the future. i think...

21/4/07 14:18  
Blogger Anak Merdeka said...

I agree, Zewt. Not many dare to rock the boat for fear of setting off a chain of unpleasant events that could shatter their comfort zones. Maybe the ghost of 513 has not been sufficiently exorcised.

22/4/07 09:46  
Blogger zewt said...

that's true... it has been so long but my late mom never fail to bring out 513 everytime there's an election... which is why she vote for BN.

23/4/07 21:48  

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