Transparency and political stability on investors’ minds

Star , Saturday March 15, 2008

Transparency and political stability on investors’ minds

COMMENT
By JOSEPH CHIN

A NEIGHBOUR was renovating his house and the contractor was intent on cutting corners by using cheap cement bricks to build a wall.

The contractor’s argument was that once he had plastered the wall, it would still look good despite the cheap bricks, which can be broken by just one blow with a hammer. The bricks cost about 14 sen each, fire-rated bricks, 17 sen and clay bricks, about 25 sen.

I asked the contractor whether he would live in the house he was renovating, and if his workmanship was sloppy. It was only after this that he opted for fire-rated bricks.

Just like building the wall, the bricks of integrity, honesty and good corporate governance have to be put solidly in place in nation building.

What investors want are transparency, an honest and fair Government and certainty in an effective political leadership which cuts across all racial barriers.

One week has passed since the general election, which saw Barisan Nasional (BN) denied the crucial two-thirds majority. Malaysia is now undergoing a test if the country is built on a solid foundation of racial and religious tolerance, and visionary political stewardship.

The throes of uncertainties are part of the painful democratic process. Racial issues have to be tackled and the losers assured they are not left out of the mainstream of economic development. Until these issues are clarified, foreign investors could be hesitant to put their money in the local stock exchange or commit to investing in projects.

Last Monday, the investing community’s initial reaction was to sell down stocks due to the uncertainties, both locally and globaly. Over the past week, the KL Composite Index has fallen 101.49 points to 1,194.84, wiping out RM70.34bil in market capitalisation.

The head of a local fund management company said that in the short term, there would be a slowdown in the economy and continued weak market conditions due to the current uncertainties at the political leadership level.

Foremost on his mind and that of other fund managers is the hope that the Federal Government and the five states now under Opposition can set aside their differences and focus on rebuilding investor confidence.

The bigger picture is the future of the country and whether the two parties can hammer out a strategy to ensure continued economic growth, political stability and racial harmony.

“We want transparency, better corporate governance and an efficient utilisation of resources,” the fund manager said.

The shares of companies that are transparent, have good corporate governance and are well managed generally command 15% to 20% premium over those of their peers.

Investors also want more transparency in the tenders for Government projects, which would avoid wastage of resources and eliminate cronyism.

Currently, Barisan Nasional still has control of Parliament and the economy, including the government-linked companies' (GLCs) transformation process and other projects funded and driven at the federal level, says Credit Suisse Securities.

“The main difference is that there is a meaningful, highly educated and eloquent Opposition which will provide a check and balance in Malaysian politics that has been absent for years.

“This should help curb the excesses of the past,” it said in a report on Wednesday.

Hence, the onus is on the BN and the Opposition to overcome their ideological differences and combine their strengths to put Malaysia on a stronger economic footing.