Economics & Strategy

Market looks steady ahead of new economic package to be unveiled in Parliament next week


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(for the week of 16-20 March 1998)

Market looks steady ahead of new economic package to be unveiled in Parliament next week

The market appears to be quiet and hesitant over its immediate direction this week - trading volume thinned to below 200m units last Thursday and Friday. Deep concerns over the banking sector's health and corporate bailouts (at the expense of shareholders) are being overshadowed by the government's careful management of unwanted publicity.

Some examples: Leaks on bank or finance companies' mergers ahead of the March 31 deadline have had the sense of achievements about them. Not many are at least close to mergers themselves, some only involving the parents taking over their respective finance company operations. And despite poor operating results from the Renong group of companies, cement companies and the farcical Sime Darby-KUB Holdings deal, we expect market sentiment to hold intact this week with high expectations of new economic measures in Parliament next week.

Finance Minister Anwar Ibrahim will likely announce a reduced GDP growth target of 3% for 1998, but details of the new package are still very much unknown. One can speculate about two possible concessions or economic stimulants: deferring the AIG and Aetna group's deadline to scale down their interests in local insurance operations and opening the door to foreign brokers to participate deeper in the local securities industry. Both, if materialised, would likely have assuring impact on the KLSE.

Local politics in the run-up to Umno branch elections look subdued with "no-contest" directive to incumbents who sit in the Supreme Council. Any chance of division among party supporters is remote because of the call for unity and closing of ranks in view of economic and financial turmoil at hand.

Indonesia does concern Asian markets this week with the latest Cabinet line-up that appears unsavoury to the International Monetary Fund. Hopes of economic reforms are now dimmed by the appointments Suharto's business partners to key posts, including plywood cartel leader Mr Bob Hasan's elevation to the Industry and Trade portfolio.

For this, we believe the currency market will again provide the clues to how the market will perform this week.

Perstima's qualified accounts: Some companies make good case study for corporate mismanagement. Perstima's audited accounts for year ended March 31, 1997 - published only last Friday - revealed why investors should never touch companies helmed by rogue self-proclaimed enterpreneurs with little track record. Not even with a barge pole. The auditors KPMG Desa Megat & Co have raised questions about the existence and recoverability of RM148m in the company and subsidiaries' accounts. A RM30m provision was made in its March 31 accounts, but a bigger sum may be required should the total sum become non-existent and irrecoverable. Among the items: a RM1.9m "combat boat" included in stocks for which document supporting its purchase was not available for examination. Besides, the company is exposed to two irrevocable and unconditional guarantees given to unidentified "third parties" as consideration for share margin trading facilities granted to a subsidiary.

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