Malaysian Government Launches $4.6 Billion Stock Market Bailout Fund!

Monday’s have usually been my weekday off. This means I don’t usually do blog post/s on Mondays.

Anyway, the stock market as political tool looks fast becoming a global phenomenon. This implies that stock markets cannot or will not be allowed to fall!  

Never mind if stock markets have little relevance to the real economy.

And failing to stem the stampede out of the ringgit, the beleaguered Najib Razak administration has now embraced the du jour developed world-China model of bailing out her stock market.

In noting of how Chinese model may serve as paradigm for the world, I predicted:

Yet pretty soon, China’s latest anti bear market paradigm may be embraced by political agents of other nations.

Well the Malaysian edition, from Channel News Asia:

Malaysia will inject US$4.6 billion to bolster its stock market and will spend millions more dollars on infrastructure projects, Prime Minister Najib Razak said on Monday (Sep 14), announcing a fresh bid to stimulate the slowing economy.

Najib, who is also finance minister, said 20 billion ringgit (US$4.6 billion) would be parked under the dormant equity investment firm, ValueCap, which was set up in 2002 to invest in undervalued Malaysian firms.

The country has seen a 9.0 per cent plunge in its stock market this year. But Najib's announcement saw the index record its biggest advance in over two years, surging 2.3 per cent at the close.

"To protect the economy from the risk (of global uncertainty and concerns over China's economy), the government will implement the various measures to maintain the growth momentum," he said.

Here is how Malaysian stocks responded to the bailout announcement:

The above chart from Bloomberg exhibits Malaysia’s KLSE’s chart including today’s unimpressive response to the bailout. 

Yet the more the desperation, the likely the opposite effects from government wishes.  This means that if China should serve as an example, the Malaysian government would have to throw more than the kitchen sink to buoy her stocks.

Perhaps to ensure a stock market boom, the Malaysian government can always consider the HYPERINFLATION option. Nonetheless, today’s bailout scheme sure looks like a start of such process.