Malaysian stocks not performing because of serious structural impediments.
- Increasingly market-dominating government linked companies and government-linked investment companies - with explicit and/or implicit unfair advantages - led to the crowding-out of the private sector.
- The lower number of banks - after rounds of consolidation - resulted in less diversity in terms of lending strategies, practices and appetite for risks.
- Falling corporate profits and other factors, translated into chronic underinvestment in productive assets, technology, R&D and innovation.
- The quality of the local education system has been in a long-term decline.
- Companies that relied heavily on cheap, low-skilled foreign labour and failed to move up the value chain were, increasingly, faced with pricing pressure from digitalisation and technology disruption.
- Those that has in the past flourished under government subsidies were by and large unable to fully pass on rising costs, leading to a narrowing of margins. Unfortunately, many Malaysian companies remain simply rent-seekers.
- The issue of corporate governance may be another reason. If controlling shareholders can pay themselves half of the company's profit as annual compensation, which represents 4% to %% of the market capitalisation with no dividend paid to shareholders, surely it must be clear that this amounts to a blatant transfer of wealth of a public company to its controlling shareholders.
Summary
The above are some of the more obvious reasons for the chronic underperformance, in terms of corporate earnings and the stock market.
They must be addressed urgently and within a holistic framework if we want to see a sustainable turnaround.
But despite all the gloom, investors can still profit by investing wisely and rationally.
Reference: Tong's Portfolio Investing can be fun and profitable
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