Investors short market in reaction to foul mouth new government

A market player was lamenting yesterday of foreigners not only sold their stock market holdings but went short.

What actually happened is more startling than the report by The Star here of foreign investors selling-off RM2.48 billion worth of shares caused the biggest fall to the Bursa since August 2013.

Singapore's Business Times here reported all the foreign inflow into the stock market for 2018 outflowed within days after the general election.

Prior to the election, foreign analysts forecasted BN to win and were generally supportive of the macroeconomic policies of former Prime Minister, Dato Mohd Najib Tun Abdul Razak.

The BN loss was not taken well by foreign investors who views the unconventional policies by the new government not to their liking and would be disruptive to the Malaysian economy.

Words coming out from the new government leaders does not indicate any intention to win back their confidence.

In reaction to the sharp decline of ringgit and stock market abroad over the long holidays after the election, the Council of Elders attempted to calm the market with statements claiming the economic situation including its reserve is strong.

This runs counter to Pakatan Harapan campaigners claim that the government is bankrupt.

Damage done

However, damage has been done by PH's campaign promises that is deemed as detrimental to the country's fiscal policies.

The new government made bold and voter-friendly specific promises that they must commit to ensure the euphoria from their victory remain.

The change-seeking young voters may not take kindly to broken promises.

A WA message commented:

Looking at PH govt from the perspective of a foreign investor:

1. The PM saying not to worry about credit ratings is telling foreign investors that Malaysia does not mind losing its A-grade investment status.

2. The govt decision to zero-rate GST because high oil prices allows some buffer is telling investors that the govt is over-relying on global oil prices again - something beyond the control of our govt - and that if oil prices goes down again, Malaysia is screwed.

3. Swearing in a Finance minister that is in the middle of a corruption trial means that the PH govt tolerates corruption even at the highest levels and has no intention of being accountable.

4. The new finance minister asking for the AG to drop its case is telling investors that the PH govt does not mind interfering with the independence of the institutions as long as political goals are met.

5. Shocking investors that the national debt is now RM1 trillion and not RM680m as previously reported is telling investors that none of Malaysia's economic data or its institutions such as BNM or treasury can be trusted or that the new PH govt does not mind lying to the world - even on crucial economic data - as long as there are political gains.

Talking as government

Another WA message reminded the new government to be watchful of their words:

There is a difference of what you can say and cannot say when you are in the opposition or in government.

For example, you can irresponsibly allege that there is RM1 trillion in national debt when you are in opposition and the consequences that you only lie to your voters to cheat them of their votes.

But if you are in government and you still make such untrue statements, it will jolt the markets, undermine investor confidence and throw the entire financial system into doubt causing foreign investors to flee, capital outflows to accelerate and our ringgit to drop.

Already, foreign outflows the week after PH won has seen foreign investors pull US$625 million out of Malaysia - close to wiping out all the inflows earlier this year. Our Ringgit has also weakened and is now close to RM4,00 to USD1.

You can lie to Malaysians but you must not lie to the investors. They are smarter and more knowledgeable than us voters.

Tell us exactly how you came to this figure of RM1 trillion? Was it official debt or off-balance sheet guarantees that are backed by assets? Surely, our auditor-general, all the hard-working civil servants in Treasury, BNM and EPU, all the financial analysts were wrong and colluding in giving a false figure?

If this lie is a pre-paid excuse to not honour your many manifesto promises which many already said cannot be delivered then I am afraid that this new PH government is deceitful, incompetent and deserves to fall in the very next opportunity.

Mat Sabu got the message and in his first statement as Minister of Defense, he said he must be watchful of his words from now on.

However, yesterday's comment by Prime Minister Mahathir to question the official national debt of RM680 billion as fake and the debt should be RM1 trillion has myriad implications.

Facebooker Tokong Tan commented:

If you are a investor and is now suddenly told that Malaysia's national debt is actually RM1 trillion and not RM680m as reported by treasury and BNM, you can only come to two conclusions:

1. The previous BN government, all the institutions such as BNM, all the civil servants had faked all statements and financial data. None of what you see today can be trusted or used to make your investment decision; or

2. The new PH government are liars and would prefer to continue to play politics instead of running the country or being truthful to investors.

So as an investor, what would you do know?

Run away.

Mahathir's comment to not worry of credit rating downgrade does not auger well.

Mahathir is aware of the implications of his popularity seeking statements and gap in the government cashflow arising from the fiscal policy to remove GST and meeting PH campaign manifesto.

It will take more than the presence of Tun Daim and Tan Sri Robert Kuok in the Council of Elders to return confidence to the market.

Its a different world today.

Sure hope he will not do the predictable move to reinstate the policy to fix ringgit as per the 2000 Selective Capital Control measures to insulate the economy.

It will permanemtly steer sway both portfolio managers and direct FDI from Malaysia.

Remember that the key ingredient of Malaysia's past economic success and its attractiveness as an investmemt destination that is missing today is political stability.

Political stability translate into continuity or in other words, stable and consistent policies. For investors, it means no rude surprises.