Should Barisan Nasional Admit other Indian based Parties

The issue whether Barisan Nasional should admit another Indian based political party cropped up again with the coming inauguration of Makkal Sakthi and with a long outstanding application by an Indian Muslim Party.

It is easily understandable why this issue emerged again after the General Election debacle in 2008 where almost all Indian candidates lost and Indian voter support was virtually decimated. Both MIC and PPP, another Indian based party, failed miserably.

To put this issue in the right perspective, please see the following table:

Estimated Voter Support by Race for BN(Semenanjung)

The above table was obtained by multiple regression analysis of Parliamentary Election results for the years 1999, 2004 and 2008 and, by any measure is a reasonably accurate estimate.

Highly visible is the virtual desertion of BN by Indian voters in the General Election 2008 in which only 10.4% of them voted the government caolition. In the 1999 election the situation was not much worse than Malay support but in the 2004 general election Indian voters were in full force when 77.4% of them voted for BN.

I have not analysed the results prior to the 1999 general election, but judging from the performance of BN candidates, especially those of MIC, it should be reasonable to assert that MIC has been a stabilising factor during those years.

The importance of Indian voters cannot be underestimated. They account for 8.5% of all registered voters in the country, but their power is magnified in 26 parliamentary constituencies where Indian votes account for at least 15% of the total votes.

The debacle of MIC in recent general election, whether the government admits it or not, coincides with the Anwar factor. In the 1999 General Election, only about 46.6% Indian voted for BN. That was the election year of the Anwar saga, mostly remembered for his black eye. In the year 2004 when Anwar was still in prison, Indian voters gave overwhelming support for BN, but in 2008 when Anwar was actively campaigning with fiery speeches, Indian support for BN virtually evaporated.

As for Malay votes, they also fluctuate and affected by political sentiment, but to a lesser degree than the Indian votes.

By comparison, Chinese voter support for BN has been more stable in the last ten years, though with a slightly declining trend.  Most notable was the 1999 general election where  chinese voters were not at all affected by the Anwar saga. However, in the 2008 election they switched substantially in favour of the opposition, perhaps sensing unusual political opportunity. This is an indicator of a mature voters, not so much affected by sentiment but rather by economic and political factors.

With the above scenario, is it fair to put the blame squarely on MIC for the BN debacle? Indian voters are traditionally loyal to BN, but they are also emotional. They can easily be instigated by a highly charasmatic speaker like Anwar in the presence of genuine or perceived grouses.

Whether those grouses were due to lack of sensitivity of UMNO to Indian community demand or lack of efforts by MIC under Samy Vellu, is open to debate, but it is of utmost importance to address this issue.

Critics put down a long list of MIC failures such as the failed Maika Holdings, inadequate Indian participation in business, the decline of Tamil schools and the destruction of Hindu temples.

On the other hand , MIC can point out to their contribution in giving out loans and scholarships to 10,000 Indian students in the last 20 years and the setting up of a private Indian University.

Moreover the crackdown on Hindraf and the bad timing of the last general election had nothing to do with MIC.

As a political force, MIC has a total of 3,000 branches with a total of 600,000 members all of them of Indian race. In contrast PPP, another Indian based BN party also claims to have 3,000 branches but only 240,000 members, ie. 48% of the total, are Indians.

Under this scenario, would it do any good for BN to admit other Indian based party. If they are admitted, can they really contribute  in the next general election, given the obvious lack of logistics of any new party?

Or isn’t it more effective just for MIC to reinvent itself just as what UMNO is doing now. Any such efforts needs special sacrifice from its leaders, first and foremost for Samy Vellu to step down to pave the way for a fresh image in the next general election. Tun Mahathir was right when he relentlessly urged Samy Vellu to step down.

DAH IKHWAN

Malaysian Stock Exchange: Where is the KLCI Heading? (Update 23 July, 2009)

Since my first article on these series dated April this year, the Malaysian Stock Market has been rising moderately with the KLCI climbing from 965 points at end of April 2009 to the current level of 1140 points.

The increase in the KLCI happened more or less in tandem with overseas indices such as the Doe Jones Industrial Average(DJIA), Nikkei, and the benchmark indices of Korea, China, Taiwan and Singapore.

With these increases, the KLCI has become even more overvalued as measured by the deviation between the model and the actual KLCI levels. As indicated in the chart below, the market is now at least 17% overvalued, indicating a fair value of KLCI at 974 points only.

The 17% market overvaluation shown in the above table takes into account the latest DJIA and exchange rate data, as well as the GDP forecast at -4.2% and CPI estimate at 1.6% for 2009; and the GDP growth forecast of 2.8% for year 2010 as estimated by MIER.

In such an environment of GDP contraction and an expected slow economic growth in the near future, it would be extremely difficult for the market to sustain the existing level. Large price increases that would bring the market to the pre-crisis level are not realistic and therefore are not expected.

Further, should the actual data for the year 2010 GDP growth and inflation rate be lower than the MIER estimate, the the current market overvaluation would actually be higher than the 17% estimated above. This could lead to a large drop in the KLCI to below the 974 level in the second half of this year.

DAH Ikhwan

Malaysian Stock Exchange: Where is the KLCI Heading?

In my earlier article ‘Wallstreet Meltdown: Analysis of Impact on the Malaysian Stock Market’, I have derived model equations explaining the factors that determine the movements of the KLCI, the Industrial Index and the Finance Index. In the models I have derived, it was clear that the Indices are largely determined by five major factors, namely capital index, GDP growth, Consumer Price Index, Dow Jones Industrial Average and the RM/USD exchange rate.

Having done the above, it is now handy to compare the chart of the model KLCI against that of the actual KLCI. I have found this to be an important tool in making a forecast or as a guide in making investment decisions.

The diagram below shows a comparison of the two charts.

In the above diagram, the actual KLCI and Model KLCI levels are plotted respectively over a period from January 1997 to April 2009.

The deviation chart derived from the above, indicating the percentage deviations of the actual against the model KLCI is shown below:

The deviation chart shows that while the actual KLCI does not deviate much and often from the model KLCI, it did happen in a few cases, in particular in 1998, 2000 and so far this year. Where actual KLCI is higher than Model KLCI, this is a case of overvalued market and vice versa.

With KLCI at 965 points, the current market level is overvalued between 14.46% and 32.51%. The 14.46% figure is obtained by factoring into the equation a negative GDP growth of -2.2% as estimated by MIER for 2009 while the 32.51% figure assumes a steeper decline of the Malaysian GDP by -3.0% and decline in CPI by -0.7% as forecast by the Economist Intelligence Unit of London(EIU).

If KLCI is actually overvalued by 14.46% the market will likely continue to fluctuate moderately without increase in trend this year.

If, however, the EIU forecast is proven correct, the 32.51% overvaluation is confirmed, then the current market level cannot be sustained and the KLCI will likely plunge to a level between 500 and 600 points. Based on past observations, a serious overvaluation(exuberance) is often followed by equally serious undervaluation(panic).

In view of the severe recession the world is facing this year and an uncertain economic environment next year, Malaysia will definitely be affected. One cannot afford to ignore this unusually negative world economic scenario.

Whatever the actual outcome, it is too risky to put your money in the market now. I would rather wait on the sideline for the time being for a better time that may emerge soon. The risk of making a purchase now is that, emotionally,you may not be able to withstand a potential big plunge in the market.

Note

You may note from the second chart above, that as in the last ten years, it will help you make a calculated investment decision if you are a medium and long term investor. This is because it normally takes more than a year for the chart to move from top to bottom of the cycle and vice versa. A daily trader or short term investor may not find any clue from the above chart.

Even as a long term investor, after reading the chart, you still have to assess the prevailing economic and finance environment to guess whether the market is due to change its trend. Admittedly, this is the most difficult decision to make and will determine whether you will be a successful investor or otherwise.

DAH Ikhwan

Copyright by DAH Ikhwan. This article or any part of it are not to be reproduced without prior written consent of the author and copyright owner DAH Ikhwan. While every effort is made to update and provide accurate information, the copyright owner will not be held responsible for the reliability or accuracy of the information available in this article. The content herein is provided in good faith and believed to be accurate

By-Election Battle for Two Bukit and Batang Ai

I am sure you know what I mean. Of course, it can’t mean any other hill than the one with PAS flag on top of it(Bukit Gantang), Bukit Selambau(PKR) and Batang Ai (BN). You could be excused to think that the ‘Ai’ above is a mispell of the English word ‘I’. If so this constituency could probably be named ‘Batang Saya’ in Bahasa Malaysia.Then this is indeed a very important possession the BN needs to defend, at least for male chauvanism reasons.

Just in case you have a different idea, in Sarawak Batang has a different meaning altogether. It means river……normally water also flows through it, of course.

I have written an earlier article in Bahasa on the chances for Anwar to take over the Sarawak Government. Indeed, the chances are slim for reasons that Sarawak does not have Indian voters, who are convinced of being alienated by the BN government. There are actually no new issues, although Anwar is trying hard to create a new one, namely native customary rights land issue.

Talking of the native customary rights,the Dayaks of Sarawak could actualy be considered as a specially lucky people. Their rights over vast tracts of land has long been recognised by the government, and not less than one million hectares of such land are found in the state.

Since the last 20 years, The state government has developed large areas of such land under SALCRA land development schemes, and this has benfitted large number of Dayak landowners. Many of them receive high annual dividends at levels unheard of by Felda and Felcra participants! ! !

Lately the government has also spearheaded numerous NCR land development projects on joint venture basis with the private sector, to benefit the native landowners.

In addition, in contrast to the Indians, the Dayaks are Bumiputera and they enjoy all the benefits accrued to other Bumiputeras in the country.

The Batang Ai Constituency is located approx 300 km from Kuching, with a predominantly Iban voter population of approx 8000 people. The area is accessable by road, but many longhouses are not, and can only be reached by boats, or only accessable on foot.

The BN has a clear advantage of accessability because of its incumbency in the state. The long established political organisation and logistics also favour Barisan Nasional.

In any case PKR is not only a new party devoid of logistics in rural Sarawak, but also a party of people and ideology alien to Sarawak.

For the time being it appears that PKR is only riding on the experience and old personal networking of Jawah Gerang in the area.. Probably it can also rely on the political networking of Nicholas Bawin who managed to get sizable votes but lost in the last general election. However, reliance on Bawin as the director of operation in this by-election could prove to be a double edged sword, since it may be difficult for him and his followers to put aside their personal feelings and aspirations as the Yang Berhormat for Batang Ai.

As for the BN candidate, he is a new face, previously working with the state agriculture Department. Based on my analysis nationwide, an incumbent usuallly has an advantage in a close fight. In this fight there is no incumbent as such, but BN has to realise that the PKR candidate is the closest to incumbency, having served as Member of Parliament for the area for four terms under BN’s own wing.

It should also be noted that BN only won this seat with a slender majority in the last state election.

Still BN has a lot to say about its achievements. Where PKR and Pakatan Rakyat fights for Malaysian Malaysia, BN Sarawak fights for Sarawak for Sarawakians. If not for BN Sarawak’s determination and Chief Minister Taib’s hard headedness, Sarawak would have been absorbed just as another Malayan state long time ago, without any immigration control and special autonomy, perhaps even without native customery rights too.Even Tun Mahathir used to acknowledge publicly how tough Pehin Seri Taib is.

For the Iban electorate to surrender Sarawak autonomy and their own future to an alien political party is something very reckless and unthinkable. As a Sarawakian, I know that even Sarawak Malays will never dream of doing it. That is why UMNO has never been welcomed to contest in Sarawak.

Although PKR can find relief in having SNAP not contesting in the election, Anwar has to face a possible rift on the ground after the selection of the by-election candidate. With the selection of Jawah Gerang by PKR, there is no guarantee the followers of Nicholas Bawin another popular politician, who was passed over by PKR leadership, would not sabotage their candidate.

Still Sarawak is a very important to Anwar and in the scheme of things for Pakatan Rakyat. In other words Anwar cannot afford to ignore Sarawak, if he wishes to become the next Prime Minister of the country.

He has to make promises to induce Sarawak electorates, even when such promises run counter to the basic principles of his party.

After considering all the above, I agree with most assessments that BN would retain the Batang Ai seat, albeit with a slender majority.

Sarawak BN should not feel over confident though, since at the end of the day it is the efficiency and effectiveness of its election machinery that eventually makes the difference.

Bukit Selambau

If the prospect of BN victory in Sarawak is fairly bright, the situation in Kedah may be different. This is a constituency 35,000 voters of which 50% are Malays, 20% Chinese and 30% Indians.

In the 2008 General Election, BN in Kedah failed to get majority support from all the three racial groups. While Malay support for BN is obvious in most of the Peninsular states, the situation in Kedah is different. Here, Malay support has not been consistent even prior to 2008 election. It is probable that this is so because of the strong influence of Pas, apart from the Tun Mahathir factor.

It is possible that some Malay votes may return to BN, due to Tun mahathir factor this time around, though it is not likely so for the Indian and Chinese votes.

In view of the above, it is likely that Pakatan Rakyat would win this by-election, though with a lesser majority.

Bukit Gantang

Bukit Gantang is a Parliamentary Constituency in Perak with a voter population of 55,471 of which 63% are Malays, 27% are Chinese and 10% Indians. In the 2008 election, PAS won this seat with a small majority of 1,566.

BN has a fairly good chance of taking back this seat from the opposition because, this time around the issue is different from the 2008 general election. While in the last general election, it was BN against Pakatan Rakyat, in this by-election it is Pakatan Rakyat against BN and the Sultan.

The selection of Datuk Nizar as the candidate is rather puzzling to me. This is in view that Datuk Nizar is the central figure in this crisis and widely known for challenging the Sultan’s decisions and prerogative.

The probable outcome of this by-election can be understood if one notice the Perak voters’ inclination in all the previous elections. Perak is the traditional stronghold of UMNO with little competition for Malay votes from PAS. Only in the 2008 general election majority of the voters went against BN. Even then, 55% of the Malays still voted for BN, while the low Chinese and Indian voter supports were still better than in most other Peninsular states.

Against the above background and with the the current political issues which hurt Malay feelings, there is a good chance for BN to take back the Bukit Gantang seat. After all, BN needs only 800 voters to turn around to win.

Should BN win the Bukit Gantang seat, it will not be difficult to calculate the number of seats BN can get, should a fresh state election be held.

But first of all, it will be nice for BN to get the two bukit and this particular batang, although one bukit and one batang will also be just fine.

DAH IKHWAN

Constitutional Crisis in Perak and the Comedians

I have always preferred to write a more serious article  on my blog and recently I wrote such articles as the Wallstreet Meltdown and its Impact on Malaysia, Bumiputera business culture and values, Bumiputera equity, etc.  After all these are fundamental issues facing our nation today, not forgetting, of course, VISION 2020, which should be the most fundamental of all.

But who  bothers to care about those things? Malaysians today seem  to prefer  more of  entertainment than those heavy stuff. What is more interesting is that our better entertainers  turn out to be our politicians. They even beat  our  artists from the  traditional entertainment industry.

Siti Nurhaliza has to be contented with lesser attention,  and gossips among artists also take the back seat, being replaced by gossips and video clips from the politico entertainment industry. So we have new comers like Elizabeth Wong, Chua Soi  Lek and, remember, the PKR YBs who have crossed over to BN recently.

Our newspapers have field days with the new found openness under Pak Lah Government. Thanks to  Pakatan Rakyat, they fought very hard for that openness and press freedom!

Politicians don’t only provide sex scandals. Even their own traditional political arena is becoming more and more entertaining.

An earlier scene  beat any of the political drama produced  in Hollywood. The  bizarre attempt to entice 30 Members of Perliament to cross over was amusing,  and   the courting and chasing scenes were  even shot in Taiwan!

If the ending was successful,  Anwar Ibrahim the hero in this drama, would have  been hailed  as the Champion of People’s Power by his fans. . .surely for them  there is no need for a fresh election… waste of time and money only.

If  one  thinks  that the above was bizarre enough, the Perak  political scene  is even more so. It started with a bang, but also now evolving into something with bizarre twists and turns.

One would expect the Menteri Besar to resign, after losing confidence of majority of the DUN members, and with  the Sultan’s decision not to dissolve the DUN. It would have been so under the normal system of parliamentary democracy. But in Malaysia today, don’t expect anything normal, it would have been too boring to follow a normal plot.

He did not resign. It is hard to imagine  how Nizar’s government could survive  a vote of no confidence in a  sitting DUN.

Don’t worry, the Pakatan even has an answer to this problem.. . . Suspend enough DUN members from BN…….. so they are back in the ‘majority’! …..again a very very bizarre action.  Even Karpal Singh believes it is unenforceable( They  should have consulted  him first, the ‘best lawyer’ in the country, who happens to be among their rank).

Imagine similar tactics employed by BN government  at the federal level, if it is really legal.They can amend the Constitution as they wish.  They can even remain in the government forever, just by suspending enough Pakatan Rakyat MPs as and when the needs arise!…. and imagine Anwar’s reactions then. 

Britain, which started the system of parliamentary democracy obviously never thought of these possibilities…..probably too remote a possibility for these more ‘level minded’ people to ponder. 

It is understandable why Pakatan Rakyat wanted to go back to the people in the first place.  It is also understable why they   conveniently ignored peoples’ mandate in the September 16  attempt. It is equally understandable why BN prefers to avoid a fresh election in Perak.. . After all who doesn’t wants  instant power, just as we like instant noodle! And  remember  each party  thinks of a fresh mandate from the people only  when it suits its interests…..and remember people always say politic is dirty!

In the meantime, Datuk Siti Nurhaliza and Datuk K, and also other artists, be contented just remaining in the audience for the time being and continue to watch the unfolding drama. The real Malaysian drama isn’t over yet.

 

DAH Ikhwan

Wall Street Meltdown: Analysis of Impact on the Malaysian Stock Market

(Updated 11 January 2009 to accomodate latest economic data)
Readers are also invited to read a related article Malaysian Stock Exchange: Where is the KLCI heading dated 27 April, 2009.

For explanations of the above chart and other charts I have derived, please read on.

____________________________________________

The extreme gyrations and the collapse of the financial markets we saw on Wall Street in the past months have indeed been a heart wrenching experience for most investors all over the world including traders on Bursa Malaysia. Other people, even how remotely connected they are to Wall Street, could not afford to ignore this debacle. Somehow, they will be affected, either in the form of the looming business slow down, their abilities to secure loans or even the security of their jobs.The impact to the world is definitely very serious and could be devastating in some countries.

In Malaysia, it is a blessing in disguise that we have already experienced our very own financial meltdown ten years ago and have already adjusted to the situation. Malaysia’s balance of payment as been in surplus for almost ten years, enabling the country to accumulate large foreign exchange reserves. As a result, our banking system is much stronger now. These factors will definitely help to cushion our economy from the Wall Street fall out.

The short term flow of fund in and out of our country may present limited risk, as most of these funds have left the country earlier because of the political uncertainty. Moreover, we should not expect the normally highly leveraged hedge funds to create havocs as in 1997 since many of them have already closed down or unwind speculative positions because of the global credit squeeze.

Even then, we cannot entirely escape the impact of the Wall Street meltdown.

The risks we face now is the very structure of our economy which is highly dependent on external trade. Malaysia’s external trade is very much dependent on the United States, which accounts for 15.9% of our direct export market. In fact, after taking into consideration indirect exports through Singapore and othe east Asian countries, total export to US may be in the region of 30%. Thus, a recession in the United States will significantly reduce malaysia’s economic growth in 2009 or even in 2010.

Of immediate interest to most of us now is how the meltdown of the Dow Jone Industrial Average(Dow Jones) impact Bursa Malaysia. I will analyse this aspect first and other factors such as the impact of GDP growth and foreign exchange rate on KLCI will also be similarly analysed.

Since mine is still not a familiar name in the areas of finance, let me introduce my credibility to analyse and discuss this topic. First, my personal profile can be accessible on this blog. Second, this is my area of expertise and special interest. I have spent more than 25 years developing and maintaining multiple regression models of the KLSE Indices which I use privately, and serve as a guide in making investment decisions for myself and the small number of private companies that I manage. I have passed through many periods of economic recession since the 70’s. My personal investment achievement have been above average with a return of 20% p.a. for the last 25 years.

This is only meant to be a scholarly article intended as a contribution to the body of knowledge in the areas of finance. Investors and potential investors may be tempted to follow my investment method, but please be aware that this article is not an investment advice. There are inherent risks in investments and I will not take any responsibility for any loss incurred (or profits made). Neither do I take any fees for this article.

The multiple regression models study the impact of a few factors on the Kuala Lumpur Composite Idex(KLCI), the the Kuala Lumpur Industrial Index and the Kuala Lumpur Finance Index. Among the factors I have selected and found having significant correlation with these indices are GDP growth and Dow Jones Industrial Average(Dow Jones). Of immediate interest to the public right now is the impact of the current meltdown on Wall Street as measured by the wild fluctuations and sharp drops in the Dow Jones.

Dow Jones is now seeing its steepest decline since the Great Depression of 1929. It plunged a total of 43.7% just within a period of one year from 14,000 points in October 2007 to a low of 7882 points on October 10 this year. This is a situation we have never seen before in our lifetime. I believe many of us are aware that this was triggered by the financial crises in United States, following the subprime housing loan problems that they suffered recently. Malaysians are more familiar with our own problem ten years ago when Non Performing Loans(NPL) triggered our own financial crises. What we saw in Malaysia ten years ago was just a miniature version of what the United States experience to day. What is worse is that it is starting to infect the world financial system.

The current debacle in the United States is the inevitable results of US government follies in the financial management of their economies. United states economy has been expanding for almost 20 years covering two decades of unprecedented growth. There was no doubt IT revolution spearheaded growth during this period, but a period of prosperity as usual leads to a period of complacency, arrogance and greed. Complacency and misplaced overconfidence infected the government financial administrators.

In response to popular opinions, the Federal Reserve always reduced interest rates to prop up their economy. The artificial props has been going on far too long that it encouraged banks to lend money to borrowers who otherwise could not afford it, giving rise to huge subprime loans. This situation of artificial economic expansion was compounded by greeds on Wall Street that discouraged good governance in the financial sector, giving rise to numerous ’sophisticated’ financing instruments such as derivatives and the emergence of highly leveraged institutions like the hedge fund. Even the banking system itself abandoned the normal banking principles and adopted a much lower capital adequacy ratio. The inevitable result is the creation of a huge financial bubble which we now see is collapsing, an event better known as the US Subprime Mortgage Crisis.

Impact of Dow Jones on KLCI

Now let us examine the impact of Dow Jones on the Kuala Lumpur Composite Index(KLCI) This can be explained by multiple regression model derived by testing time series data over a period of 22 years from 1985 to 2007. A complete model for the KLCI, Kuala Lumpur Industrial Index(KLII) and the Kuala Lumpur Finance Index(KLFI) is explained at the end of this article so that, for the time being, we can just concentrate on the simpler aspects. The KLII and KLFI were tested over a longer period of time, ie. 38 years from 1970 to 2007.

From the equation under para. Complete Model Equations at the end of this article, by keeping all the other variables constant, the 6000 point drop(from 14000 down to 8000 points) in Dow Jones from October 2007 to October 2008 accounts for a drop of 207 points in KLCI as shown in the chart below:

Since the actual drop in KLCI during the above mentioned one year period was was 443 points, the equation result explains that 207 points(1407-1200) of the drop was directly caused by the fall in Dow Jones, while the remaining difference is explained by other variables included in the equation, including a small error term. A further drop in Dow Jones from the existing 8000 to 6000 point level, would result in another drop of 100 points in the KLCI.

Dow Jone is only one of the factors that affects the KLCI directly. Another factor is the economic growth (GDP two quarters ahead) and this is included as a variable in the MODEL-Klci equation. The correlation between KLCI and GDP growth is shown in the chart below:

From the above chart, with the GDP growth expected to drop to 2% in 2009 from the current year’s 6%, the KLCI will fall 75 points as a direct consequence.

The impact of the drop in GDP growth is very much expected, in view of the current recession in the US economy. This is separate from the direct effect of Dow Jones to the Composite Index.

The Chart below shows the correlation between KLCI and the RM/USD exchange rate.

Kindly note a very strong negative correlation between between these factors, which indicate that the recent weakening of the exchange rate from RM3.20 to RM3.50 caused a fall of 170 points of the KLCI, from 1372 level to 1202. A further weakening of the exchange rate to, say RM3.80 would cause another drop of the KLCI by 137 points, but a more serious weakening of the ringgit is not likely because of the reasons mentioned earlier.

For the benefits of people familiar with multiple regression analysis, I write below the complete model equations and the necessary explanations.

_____________________________________

Technical Analysis : Complete Model Equations

The above charts have been derived from model equation MODEL.Ln.klci which is based on empirical analysis of quarterly data for a period of 23 years from 1985 to 2008. The model was built up on the hypothesis that the Kuala Lumpur Composite Index is dependent upon a few factors, including Dow Jones Industrial Average and economic growth of Malaysia. KLCI is a new index introduced more recently than other indices, so the earliest available data started that year.

Data of many variables were tested and those found not significant were dropped from the equation. I tried both actual data and the log e form of the data and found the later series provided best results.I eventually zeroed in on five factors which best fit the equation for KLCIand give reliable results as follows:

MODEL Ln. KLCI = 0.14+0.6647Ln.X2+0.1317Ln.X3+0.1069Ln.X4+0.3100Ln.X5-1.4671Ln.X6
(4.03) (3.00) (3.09) (2.01) (6.75)

R Squared = 0.85

No. of observation=88

Note: R-squared value of 0.85 means 85 % of the variations in the values of KLCI can be explained by this model equation.

Figures in brackets are T-Values, where 2 and above indicates significance within a confidence interval of 95% for each independent variable.

The historical Chart below shows the Actual KLCI and the Model KLCI for the period 1985 to 2008. Kindly note the closeness of the model to the actual data.

MODEL Ln. KLII = 0.353+0.576Ln.X2+0.214Ln.X3+0.120Ln.X4+0.376Ln.X5-1.179Ln.X6

(9.35) (4.38) (4.55) ( 4.36) ( 5.77)

R Squared = 0.94

No. of observation = 150

Note:* R-squared value of 0.94 means 94 % of the variations in the values of KLCI can be explained by this model equation.

*T values of 4 and above indicates significance within a confidence interval of 99% for each independent variable

MODEL Ln.KLFI =-0.833+0.879Ln.X2+0.149Ln.X3+0.062Ln.X4+0.518Ln.X5-1.933Ln.X6

(10.67) ( 2.31) (1.76) (4.5) ( 7.09)

R Squared= 0.95

No. of observation 150

Note:* R-squared value of 0.95 means 95 % of the variations in the values of KLCI can be explained by this model equation.

*T values of 1.76 indicates significance within a confidence interval of 92% and T values of 2.3 and above, a significance above 97% for each independent variable

In all the model equations, X 2=Capital indicator, X3=adjusted growth indicator, X4=inflation rate(CPI), X5= Dow Jones, X6=USD exchange rate

KLCI=KL composite Index

KLII= KL Industrial Index

KLFI= KL Finance Index.

The above is the first part of the article covering the Model construction. In the second part I will focus on how the models were used in guiding investment decisions.

Copyright by DAH Ikhwan. This article or any part of it are not to be reproduced without prior written consent of the author and copyright owner DAH Ikhwan. While every effort is made to update and provide accurate information, the copyright owner will not be held responsible for the reliability or accuracy of the information available in this article. The content herein is provided in good faith and believed to be accurate

The Wisdom and Follies of Pak Lah as Prime Minister

It was a sigh of relief for many people in the country on September 8, when Dato’ Seri Abdullah Ahmad Badawi at last decided not to defend his post as President of UMNO. At least the spectre of another vicious campaign that may see further split in UMNO is averted. As expected, appreciations and endorsements appeared on newspaper pages from Barisan Nasional leaders for his selfless and courageous decision.

Pakatan Rakyat leaders were more sympathetic with some kind words for him, in particular from Karpal Singh. The Kedah Menteri Besar would miss his likeable approach while Nik Aziz acknowledged Pak Lah’s rights to depart. Anwar did not say much, for obvious reasons, except in the context of his bit for power. He only said it made no difference to him as his plan to topple the government is still on track(or has been derailed).

For Tun Mahathir, it is another sense of victory.

I feel it is a good decision for him to step down. It is a selfless decision that could avert further split in UMNO. Furthermore, a democratic leader is expected to take responsibilty for the blunders made.

But what are his blunders. If you ask a few people, very likely you will get different answers. Top most in peoples’s mind is of course the BN’s failure in the last general election. But that is not the only one since there are other problems, eg. instances of leadership weaknesses in the wake of the general election leading to the formations of state governments, case in point being the choice of Menteri Besar for Perlis and Trengganu. There are other weaknesses as well, such as the perceived interference of his son in law in both politics and business. There were again incomprehensible decisions of dropping important UMNO personalities, such as Rafidah Aziz from the Cabinet.

But All Prime Ministers have had problems and weakness during their terms. These earlier Prime Ministers have all survived and retired gracefully, and I would rather see a more dignified exit for Pak Lah as well.

But Pak Lah’s blunder has been bigger than his predecessors. Barisan Nasional had its up and down. The best and below par performances were also experienced during Tunku’s time, that led to the 1969 racial riot. Tun Mahathir also had similar experiences. However, it was Pak Lah’s last general election performance was the worst, when BN lost its 2/3 majority for the first time, in addition to losing four states to Pakatan Rakyat.

Where did he go wrong. Was it UMNO? Was it that the Malays have deserted UMNO. If you read or listened to the mass media the blame is heaped almost wholly on UMNO. Many UMNO leaders and pundits on newspapers and TVs even started to question the relevance of the party and the race based politic that the country has practised since Merdeka. The chorus was even louder in English and non Malay papers, but Malay papers later came back to their senses and started to show renewed confidence in race based politics. To me it is easier for minority races to welcome the death of race based politics, but there is no reason for the Malays to be likewise. After all Malays are the Majority and still need special priviledges to survive in this country.

The above time proven political foundation of our nation is still ingrained in the Malay mind, and is obvious when looking at analysis of how various races voted in this year’s election.

An analysis of the Malay voting pattern indicates the Malay support for UMNO candidates is at around 54% in this years election, compared with 57% in 2004 election, ie. a drop of only 3%(please see article Analisis Undi UMNO dalam Pilihanraya2008: Kajian Kesetiaan Pengundi dan Ahli Parlimen). This means Malay support for UMNO was little affected in spite of all adverse election scenario this year. BN fared worse than UMNO when it suffered a drop of 10% in Malay votes, indicating lesser Malay support for MCA, MIC and Gerakan.

Non Bumiputera support for BN candidates fared very badly in 2008, with only 38% of the Chinese voters and around 8% Indian voters.

The above results indicate failure of BN and therefore, Pak Lah, in handling race relation around this year’s election time. As we all now know Indian votes virtually went to the opposition. The anti government mood thus created must have also adversely affected the Chinese votes for BN.

To me, the failure in handling race relation around this year’s election time is the only major political blunder that Pak Lah has committed. All the other mistakes, namely issues like corporate governance, human rights, judiciary, corruption and price increase are issues that surface in most general elections, and should affect voting pattern of all races equally and only marginally.

Further, all weakneses Pak Lah demonstrated after the general election could have only happened as a result of the general election failure.

Pak Lah could have averted the election catastrophy only if extra care was taken in handling the Hindraf issue. He could have commissioned polls to monitor the general feeling of Indian race at that time.In addition, he should have relied on adequate and reliable intelligence to decide on the election timing. After all he had almost one year more to finish the mandate of the previous general election.

However, every man has his follies and wisdom, weakness and strength. Pak Lah is well liked for being master clean. He is sincere, honest, humble and approachable. He has in fact initiated many important reforms in the government which are essential to further develop the country to achieve our vision as a developed nation. Perhaps, there are too many reforms taking place at the same time that it creates an atmosphere akin to anarchy, though not to the extent of what Russia experienced under Govarchev.

I am not surprised when Pak Lah announced five important initiatives he intended to see through before leaving office as follows:

1. Establishing the Judicial Appointment Commission to enhance the stature of the Judiciary;

2.Establising the Malaysian Anti corruption Commission, with greater powers of investigation and enforcement;

3.Establishing the Special Complaints Commission to enhance the integrity and effectiveness of enforcement agencies;

4.Strengthening and enlarging the Social Safety Net to ensure aid to all, regardless of race and religion; and

5.Holding a Barisan Nasional convention to improve inter racial and interreligious relations.

These are indeed the most important reforms that need to be executed in order to ensure future growth and prosperity of our beloved nation and to achieve Vision 2020. His wisdom to institute these initiatives will be remembered as his important legacy.

But, beware of rapid changes, as these could be disruptive, especially in handling reform in the judiciary.

DAH IKHWAN

Will Anwar Succeed In Forming The Next Government?

We all know by now how Anwar has targeted September 16 as the date of his take over of the Federal Government. As the date approached, most Malaysians at that time were wondering whether he could really achieve this target, though by now we realise it just remained and unfulfilled ambition of the opposition leader. When the target date arrived, instead of announcing his victory, Anwar was only able to repeat his earlier claims of floor crossing by 30 or so Barisan Nasional MPs, and what was even more unexpected, he even turned his aggressive tone to something more conciliatory, asking to meet the Prime Minister, instead, for what he claimed to be a talk for peaceful and orderly transition of the government. This was indeed an anticlimax after months of humiliating and tough talks against Pak Lah and his government. Somewhat Anwar’s credibility has been tainted in the eyes of the public.

Now, after the event, Anwar and his wife continue to claim more support from Barisan Nasional MPs, but this time more and more people have grown skeptical to these claims. Even his partners in pakatan Rakyat do not appear enthusiastic about it all along.

What is open to question is, why did Anwar fail to announce the cross over list in spite of repeated challenges to do so by the Prime Minister and the press. I can only think any one of the following possible reasons:

1. Anwar was not actually confident that the MPs in the cross over list would honour their pledge to him.It would have been a fiasco if a few of them deny any involvement, after the list is made known to the public;

2. The list likely comprises mainly non Bumiputera/ Non Muslim MPs, a situation that may easily be interpreted as Non Bumiputera attempts to topple the legitimate Bumiputera based government of the day.

3. The list did not exist, at least in the the purported number of 30 MPs as Anwar claimed. In such a case he was probably hoping for additional MPs to join on the bandwagon;

4. The MP’s in the list were probably scared of subsequent actions by the government, should the takeover attempt fail. Anticorruption charges could be instituted against them if there are proof of corruptions. After all the Pakatan Rakyat, if they are really true to their words, should only form a government with a clean and transparent foundation, and not tainted with suspected corruptions, personal inducement for rewards and betrayals.

Since this involves betrayal of the votes’ mandate I am very surprised if DAP and PAS, known for their high moral standards, will bless the formation of such a government.

Anwar may be able to convince the people if he could announce the so called ‘list of MP crossover’ followed by public confirmation by those in the list. Even such a list will not be adequate by itself, as it cannot be assumed that all the Pakatan MPs support Anwar. It is likely that PAS, or at least most of PAS MPs will not spport the vote of no confidence against Pak Lah.

For these reasons, the way to topple a sitting government is not by showing any list of crossover, but should only be done by vote of no confidence in Parliament as provided for in the Federal Constitution.

The ultimatum dates set by Anwar on September 16 and 23, are not realistic and are only meant to appease and keep his supporters in high spirit. I believe Anwar himself is aware such dates are impossible keep in view of legislative constraints. It even sounds weird for him to ask the Prime Minister to rush a special Parliamentary session just for the purpose of toppling the later. No Prime Minister in his right frame of mind will agree to it, after all Anwar does not need to wait long for the October session to try it.

The fact is that Anwar is not able to garner enough support to topple the Barisan Nasional government. for the following reasons:

Firstly, Anwar is not able to get enough support of Malay/Muslim MPs from Barisan Nasional. As it is todate, Pakatan Rakyat has a total of 82 MPs, of which 43 are Malay/Muslim and 39 are non Bumiputera. Anwar will need 30 MPs to cross over, of which at least 14 ought to be Malay/Muslim in order to maintain Malay/Muslim majortity in his government, otherwise Pakatan Rakyat will be controlled by non Bumiputera/non Muslims, a situation not acceptable to PAS. The position of PAS in this matter has been stated by its President in the Press many times.

Judging from the loyalty of Malay voters and MPs to UMNO, it will be an impossible task for Anwar to entice 14 Malay/Muslim MPs to change side. A multiple regression analysis of past election data confirm strong voter loyalty to UMNO(please see a separate article on this weblog titled ‘Analisis undi UMNO dalam pilihanraya 2008: Kajian kesetiaan Ahli Parlimen dan Pengundi’ . In addition another Muslim/Bumiputera based party PBB from Sarawak also has a strong loyalty record of its voters and Wakil Rakyat. This party with 14 MPs have actually survived defections of elected representatives twice before, after which the splinter groups quickly faded into political oblivion. Such a fate awaits any disloyal UMNO MPs.

Secondly, In view of the above scenario, and to avoid being trapped on the wrong side of the floor, MCA will not be induced to leave Barisan Nasional. Any such mistake on their part is irresponsible and will leave the Chinese community at the mercy of an almost fully Bumiputera government. Under such a situation ultra Malays in UMNO may exert more pressure within the government to push for agenda sensitive to the Chinese and other non Bumiputera communities. Such a scenario shall be detrimental to racial harmony and to our nation’s efforts towards Vision 2020. Still nothing can stop individual non Bumiputera MPs from crossing the floor to Pakatan Rakyat on emotional reasons.

Thirdly, It will be an extremely bad decision for MCA, MIC or Gerakan to leave Barisan Nasional, since such a decision is akin to acknowledgement of defeat and surrender of their lost seats forever. This is because it is hard to imagine DAP or PKR would sacrifice any of their incumbents in a fresh general election in favour of their newfound partner.

Conclusion

In view of the above scenario, if Anwar has the majority to form a government, it would be a situation where the non Malay/non Muslim members of Parliament make up the majority faction. In such a case, it is likely that PAS will leave the Pakatan Rakyat, and Anwar’s ambition of becoming the Prime Minister will remain a dream.

If PAS decides to remain with the Pakatan, Pak Lah will certainly advise the YDP Agong to call a fresh General Election.

Should a general election be held now, the Malay votes will be the deciding factor. Which party will the Malays vote this time? The answer is quite obvious, the voters will certainly punish the party that deviates from its basic principles.

Personality Traits of the Malaysian Prime Ministers

In Malaysia these days, hardly a day goes by without any mention of issues regarding our Prime Minister, be it the present PM or the previous one. My impression after going through various published articles and the internet is that virtually all Malaysians know their Prime Minister. Even children as young as four years old know him. This is particularly so in the case of Tun Mahathir when he was our PM. Even foreigners who never came to Malaysia knew and were awe struck by his courage and bluntness and his ability to articulate issues brilliantly. Generally he was well liked by people in the developing and Islamic countries as he always fought for them. In the developed world he was well respected, though probably never loved in those regions.

What made Tun Mahathir tick, was probably because he was in a way a rare species in our country. He has a serious demaenour, never laughed and seldom smiles. He is blunt, visionary, firm and never compromise on issues, at least publicly. Ironically all the above traits are not usual among the Malays. Generally,Malays are actually the exact opposite of all the above. Probably most Malays loved him because they need such a character to look after their interest, to be their champion, at least until the Anwar Ibrahim saga in 1998.

Tun Mahathir could choose to be a dictator, if he wanted to. So too Tun Razak after the 1969 riot. The two leaders were so powerful at the heights of their popularity. Whatever they decided could go without any serious opposition. Come to think of Tun Mahathir, he won whatever political battle he decided to take. Even the Malay rulers got to concede to his terms. But, Malaysia has been lucky to be blessed with such leaders. They did not choose to hold on to powers, or opt to be dictators, when losing popularity. Instead they were firm believers of democracy(As we all know Tun Razak died prematurtely, and Tun Mahathir decided to step aside, in favour of Pak Lah). We don’t have to look far for such examples. We just need to recall what happened to Indonesia under dictator Sukarno and The Philippines under Marcos. Until today these countries are still trailing far behind us, as a result of gross mismanagement. Worst still I believe most of us are familiar how Hitler came to power in Germany about 70 years ago, and what happened to the country after that. All these leaders, assumed powers through their extraordinary oratory skills to sway the voters.

Why are Malaysians so lucky? The world is filled with stories of dictators, gross mismanagement and failures of nations. Yet it should not be difficult to happen here for some reasons, if we care to ponder a little. First, under the British system of Parliamentary Democracy that we practice now, a Prime Minister can remain in place for unlimited period. Secondly, although our Constitution adheres to the principle of separation of powers, Malaysia is a small country with power structure not much dispersed institutionally and geographically. Just as in many developing countries, a highly charismatic figure ruling for one term or more in the government many not find much difficulty in exercising extra influence over the others in the power structure. Under such a situation, he may end up as a dictator, if he wants to. So far this has not happened, probably God has really blessed our country. The prayers of our Ulamas and leaders of other religions have been granted so far.

Today, our political climate seems chaotic. But we should consider ourselves as lucky having a likable Prime Minister whose sincerity and integrity is beyond question. He is often critised for making flip flop decisions. People seem to miss the Mahathir era, an era of growing prosperity,decisiveness and firmness to most, but to the opposition, an era of growing corruption, economic mismanagement and a compromised judiciary. Yet Pak Lah may be the most democratic of all the Prime Ministers. He even tolerated the Cabinet, at the embarrassment of his supporters, when it made decisions differently from what he has already announced. Yet, he has shown firmness in areas where it matters. He has rightly stuck to the policy on fuel price. He has allowed ACA to fight corruption relentlessly as never done before, and taking right step to rehabilitate people’s trust in the judiaciary.

Yet many people don’t see or refuse to see his good side. Probably because he does not articulate well in his speeches, and unable to play with people’s emotion. He is not like Tun Mahathir, and far from Anwar, a leader noted for unusual ability to sway the crowd. But the truth should eventually prevail, and sooner or later people will appreciate his efforts.

On the other hand, it can be argued that Pakatan Rakyat also promises much or even more of the same thing to the people. So success made in the above areas may only bring marginal effect.

The only thing that separates umno from the rest is that it is a Malay Party and the backbone of the BN government. This means it is the only party the Malays can trust to ensure their survival in this country. On this ground the Malays are not likely to abandon UMNO in favour of something lesser. Given the racial charged atmosphere of today, any MP leaving UMNO for PKR will not likely survive in the next general election. It must be remembered even under the worst of circumstances as in this year’s general election, not less than 54% of the Malays still voted for UMNO. My empirical analysis of the general election results also confirmed a strong voters loyalty for UMNO(a full article ‘ A study on Malay support and loyalty to UMNO’ will be published on this weblog soon).

Talking of Anwar, he is a totally different person compared with Pak Lah. He is the best orator Malaysia has ever had, probably almost at par with Sukarno of Indonesia in the 50’s and the 60’s. If he were an American, probably Anwar would be nominated to stand for US presidency against Obama ( another world class orator), but of course, if minus the scandals he is facing now. No American can go far in politics under such cicumstances. Edward Kennedy never made it for nomination because of it. Even President Clinton almost lost his job due to scandals.

But Malaysia is a nation of young population with a median age of 23 years. They are liberal minded, easily swayed by good oratory and apparently more tolerant towards moral issues of certain leaders. No doubt Americans are also swayed by oratory skill of Obama, but they also expect high moral standard of their leaders.

With the target date September 16 bandied around, most people are sceptical that the crossover of BN MPs to Pakatan would occur. Some even think that Anwar’s claim is absurd. One may ask how Anwar can really accomplish it.

Even if he manages to get 30 BN members of parliament to join Pakatan Rakyat, there is still other hurdles in front of him. First, these 30 BN MPs must really suppport him in a motion of no confidence against Pak Lah, and it must be done in Parliament; Second, he must make sure that all Pakatan Rakyat MPs support the motion of no confidence; Third, even if the motion of no confidence is carried, Anwar has to convince the YDP Agong that he has the majority support to be the next Prime Minister and form the new government.

Even if Anwar passses through all the above hurdles,It appears that the constitional provision does not allow him to form a government unless Pak Lah agrees to resign. Pak Lah has a choice, which he will certainly prefer under such circumstances, to advise the YDP Agong to dissolve Parliament to pave the way for a fresh general election[Article 43(4)]. The YDP Agong has discretionery power to accept or reject this recommendation[Article 40(2)].

In the event that Anwar, in spite of all the above hurdles, becomes the next Malaysian Prime Minister, which is very unlikely, many questions may come to ones mind. Will he be a democratic leader? Many Malaysians may take this question for granted since he is now a popular figure among a large section of the Malaysian population. But what if he loses popularity after serving a term or two in office, will he step down? Since he is so intent of becoming a Prime Minister even by way of an unethical backdoor arrangement, will he try to cling to power in the same way, or worse still install himself as a dictator? If the answer is no, Malaysia will continue to be a blessed country. Otherwise, we will surely enter into an era of dark ages, following the footsteps of Indonesia and the Philippines in the past. By then it will be too late for us to regret.

God bless our beautiful country.

Please feel free to read other interesting articles below

Malaysians and the Criminal Law : Evidence and Witnesses

[Sila lihat 'Muzakarah UMNO dan PAS' selepas artikel ini]

It may not be an exaggeration to assert that Malaysians may be the most knowledgeable lot when come to criminal law. Be it the knowledge of English Common law, the Islamic Syariah law or the provisions from Quranic verses, Malaysians must be ahead of all other people. How not to, after huge doses of the high profile cases and issues fed to us in the last one or so years by the Malaysian press, be it a rape case, incest or a homosexual case – probably too much for the press to handle with care.

By now most young and adult Malaysians, whether a Malay, a Chinese or Indian; educated or not, probably know what a DNA is, and its use in catching a criminal. It doesn’t need a genius or a scientist to understand it, an ordinary person is likely to know it, or even an idiot. After all there is only a thin dividing line between a genius and an idiot.

DNA, yes it is the latest technology that provides evidence in criminal law. Against it, or so it seems, is the 1500 year old Syariah Law that requires four male witnesses to such crime as rape or consensual sex. At first impression DNA evidence is the best, it is now being used in Civil Court to provide strong evidence in criminal cases, even where witnesses are not available. After all how to get four male witnesses to the crime? Normally rapist doesn’t do it in front of four hostile witnesses- he normally prefers four friendly witnesses! All sex offenders are like that lah! We all know that. So, one may ask, how can Islamic society protect rape or sodomy victims?

But Islamic law only means to ensure justice, hence the need for a very stringent set of evidence. It does not want innocent man to be executed. So female witnesses are excluded. May be because they are apt to hysteria! Just remember at schools, only female students suffer from hysteria. So, given the technology of that time(DNA not yet discovered), four pious men were needed as witnesses, and that they must see the action themselves! Only such conditions ensured fairness-probably even more stringent than the doctrine of ‘beyond reasonable doubt’.

But such witnesses are hard to come by, while DNA evidence are more practical to find. After all DNA evidence, a scientific process just discovered, is foolproof. Though not the same as watching the actual action, it is as good as seeing one. But probably with one important condition, that four male experts bear witness to the process of handling the DNA samples in question from A to Z. Male witnesses only? What about female expert witnesses? That is open to discussion.

In addition, there should not be any need to question which authority to oversee the procedures involved. It should be handled in the same way as any other forensic evidence practised in this country and in any advanced country.

So much for the time being, if you like some heavier stuff please look at the other articles below.

Bye.

[the above article is only intended as a scholarly article on an issue currently prevalent in our Malaysian society].

DAH Ikhwan