Media Statement
by Lim Guan Eng

(Petaling Jaya, Tuesday): DAP expresses concern that despite Bank Negara’s claim of an accelerating economy, Malaysian stocks have failed to benefit with the Kuala Lumpur Composite Index(KLCI) dropping to a 6 month low of 885 points. Bank Negara and the KLSE should analyse the reasons behind the drop in the stock market to a 6 month low despite the US$ 118 billion Malaysian economy staging a recovery in economic growth from 4.4% in the 2^nd quarter to 5.3% in the 3^rd quarter.

Except for KLCI and Bangkok, other major Asian markets all showed increases from the trading period from January 3 to December 2. There was a rise of 46.6% in Korea’s KOSPI, 33.9% in Japan’s Nikkei, 14.5% in Manila, 12.7% in Singapore Straits Times Index, 11.8% in Jakarta, 6.8% in Hong Kong’s Hang Seng Index and 1.4% in Taipei. In contrast the KLCI dropped 2.5% over the same period. Only Bangkok performed worse with a drop at 3.6%.

Such drop in the stock market is to be expected if it had coincided with the 2^nd quarter’s 4.4% growth rate, the slowest since 2002 but not when the economy has staged a recovery tp 5.3% in the 3^rd quarter. Both Bank Negara and KLSE must analyse whether such a decline shows lack of confidence in the strength and sustainability of the country’s economic growth. Or a distinct lack of confidence in the ability of Bank Negara to check rising inflation following the rise in Overnight Policy rate by 0.3% to 3% last week.

Malaysia's growth rate of 5.3% in the 3^rd quarter must be compared with the higher growth rate in Hong Kong's 8.2 %, Singapore's 7%, China 9.4% and India’s 8%. Unless Malaysia can compete near their growth levels, Malaysia will be relatively not attractive enough for foreign investors.

The failure of the KLCI to perform has caused losses to investors. Therefore, both Bank Negara and the KLSE should also study why despite the 5.3% growth in the third quarter, 33 percent of companies missed analysts' earnings estimates, according to a Dec. 2 report by Mayban Securities. Only 5% of the companies percent exceeded earnings estimates.

Amongst the companies that recorded losses during the third quarter were MAS’ RM368 million losses and Proton RM 154 million losses. This has resulted in MAS shares falling by 35% this year and Proton by 28% this year underperforming the KLCI which declined 2.5% this year. In fact corporate earnings may fall further in the fourth quarter after the rise in interest rate by Bank Negara for the first time since 1998.

Bank Negara and KLSE should know unless the quality of corporate earnings can be improved, any accelerating economic growth will not be reflected in the stock market and the domestic real economy. To improve corporate performance, Bank Negara and KLSE must instill the values of transparency, accountability and corporate social responsibility. Only then can investors be assured that the most competent management is in charge for the benefit of  shareholders, investors and the public.

(06/12/2005)