Economics & Strategy

AMC provided short-term boost, but regional developments to dominate this week

Technical View

Last week's false breakout
portends short-term weakness


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(for the week of 25-29 May 1998)

Last week's false breakout portends short-term weakness

Formation of asset management company: The setting up of an asset management company (AMC) under the auspices of the Finance Minister single-handedly boost the KL market last week, fuelling a 4% rally on Thursday. The news brings a fundamental change to the banking scene, as the AMC would be charged with the role of liquidity provider for the recapitalisation of the industry. It is expected to buy bad loans from banks and rehabilitate them over time. The AMC shareholders will likely comprise the government and private local and foreign institutions. According to Bank Negara, Malaysia's total banking loans (excluding housing loan sold to Cagamas) stood at RM399.6b, with industry non-performing loans (NPL) at about 9.3% as at end-March 1998.

The mechanics of AMC operations may not differ much from similar programme undertaken by South Korea and Thailand in the aftermath of their financial crises. The South Korean government last week engaged Deutsche Bank AG to manage the sale of US$568m worth of bonds. It had earlier hired Morgan Stanley Dean Witter to sell US$500m asset-backed bonds. Thailand are making efforts to raise US$2b bonds for similar purposes.

Regional developments: The regional markets could provide better leads for our market this week. PM Chuan Leekpai faces a no-confidence vote in Bangkok while political manouevrings and factionalism appear in political developments in Indonesia. Both South Korea's KOSPI and Thailand's SET tested near their year-low last week and may break down this week.

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