The market going downwards the past month might seem to be the factor of ringgit strengthening causing profit taking to take place by foreign investors. It is true up to a certain percentage.
But one thing for sure is that the election is just around the corner. Now we put a 80% chance that election is happening in March 2018 during the school holiday period.
18th March 2018 will be our estimate for PRU 14
So Why Does the Market Slump Have Something to do with Election?
It’s all about the money !!!
Indeed it’s really about the money. The most important thing during election is money. Money buys a lot of things including campaign items like flags, fliers, handouts, you name it, they have it!
All these things cost money and money isn’t going to be printed out of thin air. Even the Bank Negara can’t actually print money out of thin air (technically).
But one mechanism can! The stock market. If you are institutions and you control few of the biggest corporations/blue chips in Malaysia then you have a game to play.
The simple rule of driving the market down and to start collecting stocks is key in obtaining big bucks in the quickest time. You can drive a stock down causing people to sell and although some wouldn’t budge with the sell-down, a high percentage of participants in the market do.
This is when institutions would start to buy at the bottom and when its nearing election the stock price would be pushed up again. Mark to market, we already see a gain and as long as the drive down takes minimum volume. A rule of thumb in stock price movements is low volume equals quick price correction.
Just a month before the election starts, institutions that drove the stock prices up will start to liquidate their positions and immediately ‘printed money’ for the rightful winner. This is where the money obtained in such a quick time can be used to pay election requirements.
Let’s Observe Some Charts
PRU 11 almost similar patterns in November and December – market down 6%
It wasn’t that clear in PRU 12 since the financial crisis actually took over and stock market was at record highs.
PRU 13 somewhere around November -4.88% rise 5% January -4.12% again
So this time around, we see low volume drop from Oct where the ringgit factor start kicking in. Profit taking is always slow but it is not painful to the stock market. But since the start of November we see volume rising rapidly. Again this pattern is almost similar to PRU 13 and PRU 11!
Indeed, the stock market is one of the fastest way and legal to raise money. This is natural and happens almost every where in the world where the local institutions are the sharks in the market.