Business

Thursday October 22, 2009

Overseas factor boosts banking stocks

MAKING A POINT By JAGDEV SINGH SIDHU


STOCK market investors look ahead when they invest and it’s good to know they are not paying much attention to the point that Malaysia is still officially in a recession.

In fact, so confident are investors in the prospects of some companies, in this case CIMB Group Holdings Bhd, that they recently sent this banking stock – bank stocks are often viewed as proxies to an economy – to its all-time high.

I doubt they are doing so because of their confidence in solely the Malaysian economy as other banking stocks might have followed CIMB’s lead.

Perhaps they are looking at what is unique to CIMB Group – its exposure to growth in other countries, most likely Indonesia.

Indonesia has been a victim of perception, much of it negative, for some time. Often, opinions are formed without stepping foot into the country but when people who do business there wax lyrical over its prospects, surely that would mean there is more to it than the surface portrays.

Indonesia is fast being noted for its vibrancy. Domestic demand is driving growth that did not swing into the red like most countries that were affected by the western financial crisis. Poverty rates are coming down and a host of indicators are ebullient.

Countries like Indonesia, and up-and-coming Vietnam, are benefiting from market liberalisation and less red tape. Their inherent large domestic population makes them enticing destinations for many investors who see future big demand for their products and services as those economies grow.

All this would be a big magnet for foreign direct investment, money that could have found its way to Malaysia,

For Malaysia, the rise of such countries would have a telling consequence on us if we are unable to punch through our own economic mid-life crisis.

Malaysia must drop any village champion mentality and embrace the challenges those countries will pose both right now and in the not too distant future.

Market liberalisation initiatives need to be hastened and red tape cut by a faster pace to encourage entrepreneurs to set up new businesses in the country.

New sources of growth are needed and brave new methods should be deployed. There should be little room for sentimentalism or parochialism.

l Jagdev Singh Sidhu is a deputy news editor at The Star. He thinks the story of Nauru is a must-read for policy makers.

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