The Kuala Lumpur Composite Index(KLCI) will continue in 2015 its abysmal record in 2014 as the worst performing stock market in Asia Pacific, if Malaysian Anti-Corruption Commission(MACC) and BN Federal government are not serious about resolving the RM42 billion 1MDB scandal and stop the serial financial scandals epitomised by the RM 52 billion missing bumi shares scandal and the RM13.5 billion Port Klang Free Trade Zone scandal. The drop in Asia-Pacific bourses yesterday is not surprising due to the strengthening US dollar and US reduced unemployment, making it likely an interest rate hike by the Federal Reserve Bank of US in the next few months.
However, Malaysia will suffer disproportionately from a weak capital and stock market despite recording economic growth of between 5.7% to 6% last year. Malaysia KLCI in 2014 suffered a drop of 5.7%, the highest drop amongst all Asia Pacific bourses. Even countries like Thailand with lower economic growth rates of barely 1-2% in 2014, the Thailand stock exchange index rose by 15.3%, whilst Philipinees was a star performer with a rise of 22.8% in the stock index in 2014.
Why should a country that is supposed to record healthy economic growth rates of nearly 6% in 2014 suffer from being the worst performing stock market compared to countries like Thailand or Philipinnes with lower economic growth rates? Clearly foreign investors are not interested in historical performance but in future prospects of the KLCI and Malaysia.
And the future prospects for KLCI is negative due in part to many disturbing questions posed on the RM42 billion 1 MDB scandal that raises doubts not only on transparency and compliance in our capital markets, but whether Malaysia’s credit ratings would be jeopardized should 1MDB unravel and default. For this reason, it is crucial that 1MDB and the Finance Ministry come clean on the whole scandal so that everyone knows the true cost should a worst-case scenario happens.
The unprecedented action by the Prime Minister Datuk Seri Najib Tun Razak to sue Tony Pua for defamation relating to Tony’s expose of the 1MDB scandal will not make the problem disappear. Urgent action by a reputable independent body is crucial to restore confidence in our capital markets. Or else Malaysia will suffer the indignity of an anomaly and paradox of recording high economic growth rates and yet the worst performing stock market in the region.