The RM60 billion fund to buy shares from locals at a premium to market price and from foreigners at current market price is most unprecedented and unconventional – especially as the workers’ providents funds in the EPF are to be used insuch a massive manner.
If the Government is prepared to embark on such an unconventional step, it should consider introducing the following three short-term proposals to help local investors to take part in the overall effort to shore up the stock market, in particular in introducing a one-month moratorium on margin calls and forced selling.
1. Stop Margin Calls. Banks and brokers give loans up to a certain limit for clients to buy shares, which they have to top up if the price of the shares drop – whether through more shares as collateral or cash. Since March, banks and brokers have been making these margin calls on their clients, most of whom are quite dried up. If there is a one-month moratorium on the margin calls, this will have the effect of propping up the stock market. 2. Stop Forced Selling. There should also be a one-month moratorium on forced selling, arising from the failure of clients to top up in margin calls. 3. Review Margin Facilities. Previously when shares were say RM15, brokers and banks would lend clients 50% of the value, say RM7. Now the shares are only worth say RM5 and the loan to clients is only RM2.50. At such low prices, the banks should revalue and give clients a higher limit say 70% instead of the old 50%.
These three short-term measures would not only benefit the six million Malaysian investors to ensure that they are not "manipulated" by foreign speculators, but could be mobilised to help in shoring up the stock market.
Finally, however, it is the long-term measures which will determine Malaysia’s economic future, as higher productivity, greater exports, elimination of corruption and wasteful projects, moving up the technological scale, etc.