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Deputy prime minister cum finance minister Datuk Seri Najib Tun Razak announced that the government would pump RM5bn into Valuecap Sdn Bhd so that the latter could invest in undervalued stocks with strong investibility.
With this RM5bn injection, Valuecap will have a capitalisation of RM10bn, and the market remains concerned what the government will do next to rescue the equity market. Stocks are a vital constituent of the capital market. The sharp falls of stock prices not only drastically shrink the turnover, but will also make it very hard for public-listed companies to raise the necessary funds in the market, resulting in the deferment of confirmed investment plans and the companies' refusal to explore new investment opportunities. The dwindling of investment sentiment will also aggravate the current downturn while hampering future economic growth. In view of this, many people feel that the government should do something to stabilise the stock market. Thanks to the Wall Street shakeout, local markets have been badly bruised. Having said that, to support stock prices through fund injection may invariably arouse some concerns. First of all, such an act may promote money game. In the past, money game in this country always culminated in the rapid rises in stock prices and the aberrant social phenomenon in which the entire nation was involved in the share market. The support of equity market through increased monetary supply would bring the money game back into life, and many speculative investors would think the government would continue bolstering the market. Once this kind of mentality shapes up, money game will invariably become the norm in our society. Warren Buffet has said we must be cautious when others are greedy, and be greedy when others are cautious. In other words, investors must act in reverse direction in order to profit from the equity market. Nevertheless, what we see is ubiquitous herd instinct among stock investors. Another thing we must consider is whether the fund injection will perk up inflation. The upward trend in goods prices has been contained pretty well in recent years because of the sluggish or even negative growth in money supplies. As a consequence, while it is the government's duty to offer a helping hand to fix the economy after the severe plunge in equity prices, it remains questionable whether the whole society should be made to bear the consequences of such a rescue package. Other than fund injection, the other stabilisation schemes include the review of FIC guidelines, deregulation of foreign investments, lending support to SMEs, etc. That said, direct injection of funds has since become the preferred option of governments worldwide. For instance, the Dutch government has injected 10 billion euros into ING Bank, which is among the world's top 20 banks by asset. ING in return issues 10 billion preference shares each with a face value of 10 euros to the government. If the ING Group issues dividends to holders of its ordinary shares, the preference shares held by the government will then be entitled to at least 8.5% in dividend yield. To better tackle the current financial storm, the US government has finally decided to call a global financial summit to push ahead global financial reforms. Although President Bush agrees that the US financial system needs to be modernised and fortified, he stresses that any reform solution must not deviate from the fundamentals of "democratic capitalism," that is, free market, free enterprise and free trade must all be protected at all costs. Ironically, Washington's latest move to inject funds into banking institutions is an act of outright socialism. In addition, many analysts have also pointed out that it would be an uphill task to get Washington and US businesses accept the setting up of a watchdog organisation to oversee their operations. In response to the financial crisis, governments must strive to erect a credit warning system, offering the necessary proposals or assistance before individual countries are swept into the whirlpool, thus forming a more rigorous global financial safety net. It remains to be seen in what format Malaysia will take part in this financial summit, but one thing is for sure, the summit cannot go ahead without hearing the voice of developing countries. (Translated by DOMINIC LOH/Sin Chew Daily)
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