Mahathir’s announcement that the government will boost the KLSE by buying shares is deeply worrying

(Petaling Jaya, Wednesday): The announcement by the Prime Minister, Datuk Seri Dr. Mahathir Mohamad that the Government will buy shares to boost the Kuala Lumpur Stock Exchange whose composite index has slipped to a ten-year low  is deeply worrying.

It raises many fundamental questions, such as:
 

• Is it  right and proper for the government to use public funds to enter the stock market.
• Is the government more perceptive, intelligent and nimble  than private investors in dabbling in the stock market?  Last August, the government through Mahathir and Tun Daim Zainuddin advised Malaysians to enter the stock market on the ground the the stocks were "dirt cheap" as the Kuala Lumpur Stock Exchange (KLSE) Composite Index had fallen from 1,200 points early in the year to the 800-level. Those who acted on government advice and entered the stock market at the 800-level have suffered enormous losses as it had plunged to the 320 level, threatening to crashed through the 300-point mark.
• Is the 310-330 level the lowest that the KLSE CI would descend to in the forseeable future, or could the KLSE break the psychological barrier of falling below the 200-point mark and even beating the 170-point mark at the Kuala Lumpur Stock Exchange during the worst days of  the 1980s recession?

Before the government embarks on a new venture to use public funds to prop up the stock market, the government should give a full and detailed accounting on how the government’s plan last September to establish a RM60 billion fund to prop up stock market prices had fared.
 
(19/8/98)