Mahathir addresses fund managers on market woes

Mahathir addresses fund managers on market woes

KUALA LUMPUR (Reuter): Malaysian Prime Minister Mahathir Mohamad yesterday addressed foreign fund managers as part of his government's efforts to reassure nervous investors about Malaysia's economic policies.

But, unlike previous discussions between officials and fund managers, the premier conceded Malaysia may have made mistakes in attempts to stem a massive sell-off in its stock market.

"I think the fund managers were impressed by the humility displayed by the prime minister," said James Alexandroff, who is based in Singapore with Arisaig Partners.

Alexandroff, one of four fund managers who briefed reporters about the late morning meeting, added, "He (Mahathir) admitted that some of these recent actions have probably been misguided."

Specifically, Mahathir, who is known for his tough-talking, shoot-from-the-hip pronouncements, admitted that a decision to restrict trading in the key 100 blue-chip stocks was a mistake, the fund manager said.

"He said it was a misunderstanding to do with the definition of designated stocks," he said.

The "designated securities" label, which effectively blocked short selling in the stocks and shortened trading settlement, was lifted a week ago after being bitterly criticized by foreign investors, some of whom found their trading positions trapped.

Mahathir also provoked consternation when he repeatedly blamed foreign speculators for Malaysia's economic woes, charging a "racist" plot to destroy his country's progress.

But in recent weeks, senior government officials have gone on a mission to woo back alienated foreign investors.

Mahathir's deputy and Finance Minister Anwar Ibrahim held a closed-door session with the same group of fund managers on Friday, and government economic adviser Daim Zainuddin also spoke with investors over the past week.

Freshly back from a trip to Mongolia and Kyrgyzstan, Mahathir met for 90-minutes on Sunday with about 50 fund managers from the U.S., Europe and Asia, who have been in town since the end of last week for a PhileoAllied Securities conference to showcase Malaysia and its companies.

This latest group of fund managers say that while pleased with reforms Malaysia is making, they are not yet sold on its fundamentals.

After seeing a 20 percent drop in its ringgit since early July and a nearly-30 percent loss in share prices since the start of the year, Malaysia has hastily abandoned not only the week-old trading curb, but also several big projects like the US$6.2 billion Bakun dam.

Malaysia's biggest economic problem "is confidence", said David Roche, of the London-based Independent Strategy. "It needs foreign direct investor confidence and confidence from Malaysians that things are going to get better and that they can invest their money here," he told the news briefing.

The fund managers said they expect Malaysia's growth rate to slow from its eight percent plus pace seen for almost a decade. Roche said the long-term growth rate could be around 7.5 percent, while Sean Chan, of TCW in Hong Kong, said he expects between 7 percent and 7.5 percent.

Malaysia has insisted it will see over eight percent growth in 1997 despite private economists' predictions that growth will slip to slightly under 8 percent this year.

In interviews following the meeting with Mahathir, several fund managers said they remain concerned over slowing earnings growth, the stability of the ringgit, interest rates and the valuations of the market.

Despite the stock market's steep decline, "it's not really cheap", said one Singapore-based fund manager. "It's still expensive by book value of 2.5 times."

The issue of foreign speculation has also not gone away even if the prime minister has for now abandoned his harsh rhetoric on the subject. Fund managers said Mahathir raised it at their meeting.

"Yes, there was clarification by the prime minister on what he viewed as speculation and manipulation," Chan of TCW said.

Asked if the fund managers agreed with Mahathir's assessment that foreign speculators were at the crux of Malaysia's woes, Roche quickly volunteered his opinion. "I can't resist answering that," he said. "Personally, I think it is wrong to attribute this to evil intentions, Machiavellian manipulation or anything else."