SOME ADVICE FOR THE MADANI FOLKS

 

OutSyed The Box

Wednesday, June 28, 2023

SOME ADVICE FOR THE MADANI FOLKS

 

I think I will give some advice to the Madani folks which may help them manage things a little easier. Not necessarily better but maybe easier. Actually that is what I have been doing for the past donkey years but they rarely listen. I dont wish to sound sombong (I can hear some of you snickering and laughing) but you decide if what I say makes sense or not.

Today a little bit about the stock markets or the bursa saham. Let me get to the point - it is NOT part of any government's policy making or economic planning to comment or interfere in the stock markets. It is not part of any government's fiscal or monetary policies.

Just leave the stock markets alone.  

Of course it is the government's job to set up a stock exchange, make the necessary rules and regulations for the efficient functioning of a stock exchange but thats it. After that just leave the stock market alone.

Whether the stock market goes up or goes down should not be the concern of government policy. You never hear the Japanese prime minister, the British PM or the American president making statements or policy announcements to boost their stock markets.

There is a simple reason for this. The stock market is perhaps the most visible manifestation of the free market  system. It is driven purely by market forces and by a magic term called "price".  Not by government policy, not by the politicians, not by anyone. The stock market is the true bastion of the free market. (I am avoiding using the word capitalism which has been misconstrued by the semi-literates).  

If any government tries to intervene in the stock market - for example to try and prop it up or give it a boost - you will commit suicide. 

The recent reduction in some stamp duty for share transactions is nonsenical. I agree, please make it easy to transact shares etc but that will have absolutely no effect on the overall performance of the stock market.

But government policy can KILL a stock market. Foolish policy can kill a stock market for example you can kill the stock market by introducing a transaction tax etc. But there is no policy anywhere in the world that can boost ALL stock prices. 

WHY?

Because the performance of the stock market is the sum total of the performance of each individual company that is listed on the stock market. Shoe manufacturers, hotel owners, oil palm plantation companies, private health care companies, computer manufacturers, steel mills, retail chains etc. The mix is too diverse. And the performances of all these individual companies depends entirely on their own management skills.The government has no part to play here.

The government cannot wade into the stock market, wave a magic wand and say kun-pa-ya-kun (Be and it is!) and expect the entire stock market to magically improve. It does not work that way. 

So to the Madani folks, stop commenting about the stock market because government CANNOT determine the performance of the stock market.

The job of the government is to make good economic policy that benefits the entire country. That is all. Hopefully the good policies will then translate into better performance at the stock market.

And stock market investment has nothing to do with FDI or foreign direct investment. Do not get confused. And dont worry.

Money invested in any stock market in the world is actually FLIGHT CAPITAL. Temporary money. It can come in today, and be out by tomorrow. It is not part of long term investment in the country which is what FDI is really.

Foreign Direct Investment is long term investment that goes directly into building factories, machinery and equipment in the country.  Somewhere along the process there is some cement mixing, pouring concrete and such. Not buying shares in the Bursa in the morning and then selling the shares and exiting the Bursa by the afternoon.

So never regard foreign shareholdings in our stock market as part of foreign investment. It is not. It is opportunistic, often speculative, flight capital.

Foreign Direct Investment is planned and executed by the engineers, the businessmen and entrepreneurs who wish to make a product in our country. People with some grease stains on their hands.

Share market investment is decided and executed by financial managers and investment managers from airconditioned offices in New York, Hong Kong, Singapore etc. They play a purely financial game. They are NOT FDI.

Of course if there are not many or only a few foreign buyers of shares in our stock market (or the foreigners are all selling their shares here) that is not a good sign. They have no confidence in our economy. 

Just for your interest, today has been an ok day for stock markets around the world. 

The majority of the stock markets (there are about 40+ of them?) around the world closed in 'green'. Not red. Meaning the markets made gains.

You can see the table below and see that yellow highlight which shows the percentage gain (or loss). Most of the stock markets finished higher.

 

What is high? In today's world if a stock market index moves up (or down) even by half a percent (0.5%) that is a significant movement.

You can see that the Japanese Nikkei Index is really shooting through the roof. The Nikkei has jumped 2.02%. That is a mighty jump. The Nikkei went from 32,642 to 33,194 (up 655 points). 

Hong Kong's Hang Seng has increased by a smaller 0.12% but it still an increase.

In our region now the major Asian stock markets like the Nikkei, Hang Seng, Shanghai, Shenzen attract vast amounts of "flight capital" or short term investment funds. 

So leave the stock market alone. The government should not concern itself about the macro movement of the stock market. That will be a suicidal mission. No one can determine the outcome of the stock market.

Trying to fix the outcome of a stock market is called market rigging and is a crime anywhere in the world.