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ECONOMICS & STRATEGY (for the week of 20 - 24 July 1998)
Confidence, properties remain weak, a Viagra-like boost for the market?
Corporate governance - is it improving? Since the Nov 1997's ill-conceived UEM-Renong transaction, industry authorities in Kuala Lumpur have spared no efforts to instil good corporate governance among its family of more than 730-odd listed companies. But the situation appears to be disintegrating, rather than improving. The fallout equity market crash has had the effect of unearthing some of Malaysia's unsavoury corporate behaviours.
Properties - where are we heading? These are trying times in Kuala Lumpur. Credit squeeze, growing unemployment and business failures are bad news for the economy. Coupled with high interest rates and reduced affordability, they are distress signals to the property sector. It is no surprise that the KLSE Properties Index has fared worst than the broader market's collapse. At 518 points on July 17, it has plunged 83% from the peak seen in Feb 1997 against the market's corresponding 65% decline.
Despite such gloomy outlook, the drop in real estate prices haven't been that rampant. The 1Q98's transactions were already 30% less brisk and 24% lower in value compared to a year ago. But weakening holding power - no thanks to falling wages, growing unemployment and credit rationing - means the market may not stave off that steeper decline for much longer.
Already, 90% of 68 KLSE-listed property stocks are trading at less than 1.0x price to-book value (P/BV). Consider this, too: 75% of them are trading at more than 50% discount to their book values. If the stockmarket is a good gauge, then we haven't seen the worst. In less acute situations, stocks may not have much more room to fall. But the state of the economy and uncertainties mean bargain hunters will be far and few in between. That could only delay recovery much further down the road.
Viagra the earnings efficacy? So much have been said of Viagra, the drug to cure erectile dysfunction, produced by New York-based pharmceutical group Pfizer Inc. Yet so little is written about who might benefit, in investment terms, from its availability in Malaysia, soon.
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