Towards nationalisation and international irrelevance? (2)
|Oct 19, 2011|
Some comments on the article of yesterday:
The author warns about a very serious issue that is slowly cropping up and could have devastating effects in the long term. This reminds me of frogs, if you throw them in hot water they will immediately jump out, however if you put them in cold water and slowly boil the water the frogs will not feel the difference and stay in it until they die. The frog is the Malaysian exchange with PNB, EPF etc slowly turning up the heat.
From a corporate governance point of view I liked the way PNB made a General Offer for SP Setia (no "delisting threat", management responded that the price undervalued the business, etc.). However, I very much share the worry of the author. In general business is best left to the private sector, not the public sector.
The author doesn't mention Khazanah Nasional, Ministry of Finance etc, does that mean that they are not included in the statistics? That would make matters even worse.
International irrelevance: Malaysia once made up 30% of the emerging markets index, now it is reduced to only 3%. If the free float continues to diminish the threat of irrelevance is very real.
EPF and PNB currently control 40% of the market capitalisation: it has been said that if one party controls 10% of the market, it becomes the market, it can't outperform the market. With the two big funds controlling 40%, any chance of outperformance is gone. They will underperform the market due to costs, although percentagewise those costs might not be that high.
"Voting rights of minority investors will diminish in value": we have seen already many examples of this, cases where (in my opinion) the deals offered were really bad for minority shareholders, but the deals were nevertheless voted through with the help of GLICs.
The solution, as mentioned by the author, is so simple, yet it requires a large change in the mindset: let PNB, EPF etc. invest abroad. It would avoid the crowding out and at the same time increase the healthy competition, Malaysian companies have to fight with foreign ones to get investments.