Largest Msian wealth destruction ever?
MAWPublished: Nov 9, 2006 9:55 AM | Updated: Jan 29, 2008 10:21 AM
'CI hovering around 1,000', 'Market at 6 1/2 year high'. The recent newspaper headlines sound like good times are coming back (although the 6 1/2 year high implies the market was higher in 2000, when in actual fact it was even higher in 1997 and its all-time high was in 1993, 13 years ago!)
The Edge on Oct 30 made a comparison between stock market capitalisation changes between 1996 and 2005 for nine Asian countries based on a research done by Citigroup's Chua Hak Bin. The market caps are all quoted in billions of US dollars (to make the comparisons fair).
Except for Indonesia (where market cap is down by US$9 billion), Malaysia is the only country where the market capital has fallen over 10 years, and by a huge margin, - 40%, which equals to US$117 billion or RM427 billion. The loss is staggering and mind blowing, especially considering that the other eight countries managed to increase their market cap by an average of 134%.
We can ask ourselves the question: how well should Malaysia have done? My conservative guess is that Malaysia's market cap should have increased by about 53% over the 10 year period. It would then take sixth place in the above table, between Singapore and Thailand. A growth of 53% over 10 years corresponds with a yearly compounded growth of 4.4%, reasonable given the inflation rate and the lower economic growth due to the Asian crisis.
This growth would imply a market cap of US$452 billion in 2005. The difference between this number and the actual number is US$274 billion or one trillion ringgit (RM1,000,000,000,000). This amount is so large, that divided by the number of Malaysians, it would equal to RM38,000 per Malaysian. Anybody with direct or indirect investments in the Malaysian share market is affected by this and everybody else surely indirect affected by the huge negative wealth effect.
So what went so horribly wrong? According to Wikipedia: 'Indonesia, South Korea and Thailand were the countries most affected by the 1997 crisis. Hong Kong, Malaysia, Laos and the Philippines were also hit by the slump. Mainland China, Taiwan, Singapore and Vietnam were relatively unaffected'.
In other words, the Asian crisis cannot be blamed for Malaysia's relatively bad performance compared to the other Asian countries. Also, Malaysia is surely the luckiest country of the nine in terms of natural resources. But what did cause this destruction then, who is responsible and what actions are taken?
The Edge on Oct 30 made a comparison between stock market capitalisation changes between 1996 and 2005 for nine Asian countries based on a research done by Citigroup's Chua Hak Bin. The market caps are all quoted in billions of US dollars (to make the comparisons fair).
Except for Indonesia (where market cap is down by US$9 billion), Malaysia is the only country where the market capital has fallen over 10 years, and by a huge margin, - 40%, which equals to US$117 billion or RM427 billion. The loss is staggering and mind blowing, especially considering that the other eight countries managed to increase their market cap by an average of 134%. We can ask ourselves the question: how well should Malaysia have done? My conservative guess is that Malaysia's market cap should have increased by about 53% over the 10 year period. It would then take sixth place in the above table, between Singapore and Thailand. A growth of 53% over 10 years corresponds with a yearly compounded growth of 4.4%, reasonable given the inflation rate and the lower economic growth due to the Asian crisis.
This growth would imply a market cap of US$452 billion in 2005. The difference between this number and the actual number is US$274 billion or one trillion ringgit (RM1,000,000,000,000). This amount is so large, that divided by the number of Malaysians, it would equal to RM38,000 per Malaysian. Anybody with direct or indirect investments in the Malaysian share market is affected by this and everybody else surely indirect affected by the huge negative wealth effect.
So what went so horribly wrong? According to Wikipedia: 'Indonesia, South Korea and Thailand were the countries most affected by the 1997 crisis. Hong Kong, Malaysia, Laos and the Philippines were also hit by the slump. Mainland China, Taiwan, Singapore and Vietnam were relatively unaffected'.
In other words, the Asian crisis cannot be blamed for Malaysia's relatively bad performance compared to the other Asian countries. Also, Malaysia is surely the luckiest country of the nine in terms of natural resources. But what did cause this destruction then, who is responsible and what actions are taken?
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