Market Correction Long Overdue

In Jeff Ooi's blog, he wrote "Think-tank Khoo Kay Peng, who has been having a public spat with a Gerakan deputy minister over the "feel good economic indicators", may feel vindicated. He had reiterated in Malaysiakini that stock market is not a yardstick for economic performance."

I do not feel the necessity to be vindicated. Deputy Minister Ng Lip Yong has his role to play and his duty is to ensure that there is enough confidence in the economy. I reiterated in my response to him that the economy has indeed improved since 2005. In a Bernama report, Malaysia's economy last year grew at 5.9 percent, beating earlier forecasts as the fourth quarter growth of 5.7 percent rounded up a year of increased activities in all major sectors.

The Statistics Department said on the production side, the fourth quarter growth was boosted mainly by the sturdy growth of services and agriculture sectors. Services, underpinned by higher expansion in finance, insurance, real estate and business services sub-sectors, grew by 7.0 percent in the fourth quarter, agriculture rose by 6.5 percent, manufacturing moderated to 4.3 percent, construction rose 0.6 percent and mining 1.9 percent.

However, my main concern was directed at the over speculation in the stock market. The prime minister's statement on the KLCI reaching 1350 points was unnecessary because there are enough signs pointing to an impending correction in the stock market. I heard that many retail investors who went in on the T+3 trading this week had their fingers burned.

The Kuala Lumpur Composite Index tumbled 40.63, or 3.3 percent, to 1196.45 at the close of trading in Malaysia, its biggest loss since Sept. 21, 2001.The main stock index dropped to its lowest this month. The smaller Second Board Index fell 2.7 percent to 98.05 yesterday, while the FTSE Bursa Malaysia Emas Index declined 3.4 percent to 7950.16. Declining stocks beat gainers 919 to 175.

"We were neutral Malaysia at the start of February because it has gone upvery fast,'' said Mark Jolley, Deutsche Bank AG's Hong Kong-based chief Asian strategist to Bloomberg. He is now calling a trade buy.

Other bourses in Southeast Asia suffered similar sell-off followed a near 9 percent plunge in Chinese stocks on Tuesday.

The correction is necessary following a drastic increase of the KLCI since the end of 2006. However, the market is not expected to go on a free fall. A further correction of 3-4 percent can be expected before the KLCI stabilizes.

Instead of focusing on the stock market frenzy, we should focus on strengthening the government's implementation mechanism instead so that projects under the 9MP can be implemented effectively. The expected slow down of the US economy to 2.6 percent this year will have an impact on our E&E exports. Hence, both private investment and public spending are expected to help boost the economy.