What is there to invest in anymore?

It used to be when friends asked me what shares to buy, I would recommend a few solid blue-chips, like Perlis Plantations (PPB), Public Bank (PBB)and Sime Darby.

I have also told them to buy and keep these shares long term. In fact, I myself have gained quite a lot from the appreciation of these shares over the years. PPB and PBB are both selling  over double digits per share now. Over the years, they have given out  bonus issues as well as attractive dividends and people  who have bought them even 5 to 10 years back would have made a ton of money and those who have bought in the 80s much more.

Financial people used to say that if you want to know about Malaysian economy and its future prospect, just look at the conglomerate Sime Darby Bhd. It has wide ranging businesses, from retails, trading, plantations, industries, constructions, cars, real estates, healthcare, energy  and so on. Those who have bought Sime Darby’s shares before would have made quite a bit too.

Many of the management in Sime rose through the ranks over the years  and they  have inherited the  culture of being careful, conservative and  prudent, since many of the companies in Sime’s  stable like Dunlop Malaysia, Tractors , Guthrie, Golden Hope (formerly Harrison and Crosfield) and so on were formerly run by the British .

The British, despite the colonial power that it was , did many good things to Malaysia. Unfortunately,  many of these we have squandered in the name of nationalism. Of course, there were some not-too-good things left behind too; one of the most glaring being the racial divide that was a direct result of the British system of divide and rule. Despite that, we cannot deny that there were many good things that were left for us.

Among the good things left behind were  good roads and communication , fair and independent judicial system, good  healthcare , and a relatively good education system. Besides the  road system that still remains good, all the other systems have turned from good to mediocre, and from mediocre to bad.

One of the legacies left behind by the departing British was the civil service, which was fair, efficient and most importantly, it operated according to the rules and laws of the land. I would not want to use that to compare with the present civil service, since this is outside the topic I am discussing today, and I leave it to you to assess for yourself.

Another legacy was of course good business practices in many former British companies which had been  taken over by Malaysians since our independence.

For those who have worked in these companies and rose to managerial positions, they have inherited a sense of openness, fairness and most importantly accountability.

But over the years, as the political and economic landscape changes in Malaysia, we can see a slow but definite change in business practice too.

It is no longer how good a person run his  business that determines the success or failure of that company. It is who that person is and whom that person knows that determine the success of his businesses.

Those who have connections and  pull the right strings get all the lucrative projects, and not only that, slowly and surely a culture of cronyism and kickback started. To get business means that you must know the right people, but you must also be prepared to offer ‘commissions’ for these ‘right’ people to get the business you want.

Once the culture of cronyism sets in, the whole philosophy of how to do business in Malaysia changes. It  is no longer about who has the best to offer the country, but rather who has the best to offer the decision makers, both in public or private sectors.

We all know that once a culture has taken roots, it is a mammoth task to change that culture. In this case, the roots are so deep that even a tsunami may not uproot the whole culture of cronyism and ways of doing business.

Not too longer ago, in 2007, we had the Transmile debacle, in which accounting frauds covered up a multi-million loss and turned that loss into multi-million paper gain — to the tune of a whopping overstatement of hundreds of millions. The share price of that company dropped steeply after this was made known  and hundreds of minor shareholders, which could have been you and me, suffered losses because of the fraud.

Sime is no Transmile. It was a profitable company. It used to be very well run and most fund managers and many private investors would invest in it as a form of ‘fixed deposits’;  as a hedge against violent share price movement, since as a blue-chip, even during a bear market, its price would hold relatively well as compared to many other companies.

So the news of cost overrun and loss to the tune of a billion in this company- mind you, BILLION- is a shocking news. How could that have happened?

Dr Mahathir has written in his blog that the company knew about the losses 3 years ago, but why wasn’t the public told of these? As a public company, it has an obligation to reveal all these not only to its shareholders, but the public as well, since everyone of us could be a potential investor in that company.

What went wrong? Was it due to genuine mistakes, the bad business decisions? Was there any misappropriations? Was there any frauds?

These are the questions that need to be answer, and answer quickly,  since as a company that prides  itself as the cream of Malaysian economy,  a loss of confidence in that company by investors, whether local or foreign,  would have far reaching consequences.

If investors cannot even trust a blue chip company like Sime, what is there to invest in anymore?

This article is also posted in my column in  MalaysianInsider

24 Comments (+add yours?)

  1. disgusted
    May 22, 2010 @ 22:53:30

    Yes, good roads, communication…..and we have forgotten one thing most peoples and governments don’t give a shit.

    Climatic change…and is going to get worse or worsen by the days and months.

    Oklahoma, US, raining hailstones, the size of a fist crashing down …watch yahoo video

    Or U-tube: engine search, type: Billy Miere on climatic change (contact notes)

    When huge disasters happen, forget your investments and other luxury facilities….

    Like

  2. Nick
    May 23, 2010 @ 06:00:50

    Enjoyed reading this piece by Dr. Hsu. You hit it on the head. Sime Darby is the bellwether Company and a mirror reflection of the Msian Economy as a whole. you can say “what is good for Sime is good for Msia”.

    I used to work for PW in KL and was working inside Wisma Sime Darby in Jln Raja Laut. It was and I believe still is the most prestigious client in PW’s portfolio. Sorry to say, maybe there should be a change of auditors after this fiasco. Familiarity breeds…. you know what I mean. Over the years, you can see that Sime really has the wherewithal to bounce back. I remembered they got into big trouble running a Bank. They ditched that, took the losses and immediately bounced back the following year. It is really an exceptional Company. So, Dr. Hsu is right, the Board needs to come clean and come clean quickly to earn the trust of investors. Heads have to roll. Why only the CEO? You mean such big invetsments decisions taken only by one man? Most of these GLC’s stinks and the only way they do well is when they owned the monopoly assets like Tenaga.

    Like

  3. klm
    May 23, 2010 @ 09:11:52

    In the past Sime Darby had good strong independent people as directors. Today, Sime Darby has retired politicians and civil servants there. The BoD of SIme Darby is a luxurious pasture for these retired horses. They are part of system political elite system. Their function is to protect the political elites.

    Over the past decades, Sime Darby had been corrupted just like other institutions in the country.

    Like

  4. klm
    May 23, 2010 @ 09:12:58

    An oh. Some one coined the term Slime Darby to show what this company had become.

    Like

  5. A true Malaysian
    May 23, 2010 @ 11:06:29

    I agree wholeheartedly the points put forward by Dr. Hsu except the point on “divide and rule”.

    This “divide and rule” is more of political agenda of Umno to instill or harbour hates and hatreds in our minds against British. Their emphasis on this is the outweigh the good things left to us by British. They are not grateful for these good things but harbour on this “divide and rule”, and bring back their feudalistic mindsets into the system (especially during the old goat rule), and the rest is what we see as described by you, Dr. Hsu.

    The so-called “divide and rule” policy of the British has its meritocracy content in it, whoever good and work hard in the system, they got what they worked for, as simple as that. I don’t want to go further into this as obviously, we have lazy recalcitrant people in all races and do not confine in a particular race. It is only whether you got more or less of such people in a race.

    Another point, Mahathir knew it 3 years ago. Why? Insider Information? Did he or do he owns any Sime Darby shares? Is he in breached of insider trading? He was the one who start this Bakun project, wasn’t he?

    Now, who to blame? Sime Darby or Mahathir?

    Like

  6. A true Malaysian
    May 23, 2010 @ 11:29:27

    Now, who to blame? Sime Darby or Mahathir?

    or British?

    By the way, when things went sour, they don’t blame themselves but on, economy, financial disaster, unfair competition,…..

    Even if PW found out the fault earlier, what’s next under the present set-up?

    Like

  7. aca
    May 23, 2010 @ 17:32:27

    the sick culture of corruption and cronyism espoused by UMNO is every where. we are going down into the pits, PERIOD.

    Like

  8. kl_boy
    May 23, 2010 @ 17:33:06

    Agree with Nick. Was with PwC 🙂. Auditors needs to be relooked as I noted that the Partners for their audit became too ‘comfortable’ and ‘submissive’ towards the BoD demands despite the problems encoutered by their field staffs as they tend to scold the lower levels for not managing their clients well. Hence, most of the audit teams just want to finish the audit (pray that no serious issues pop up) and get on with their already overburdened portfolios. However, i don’t think it just a problem with PwC as all major accounting firms encounter this as well. Just depends on how well regulations back up the auditors findings later on. My opinion.

    Like

  9. klm
    May 23, 2010 @ 21:16:05

    Wow. So many PwC auditors. Wasn’t the big four that contributed to the blow up of Enron, Worldcom etc. I am not surprised PwC had lapses in Slime Darby.

    Like

  10. Dr Hsu
    May 23, 2010 @ 21:32:25

    klm,
    There is a perception that most lawyers cannot be trusted.. maybe we can extend that to accountants/auditors of big multinationals? And with 25th medical school (Master skill college just got a license to start one in 2012), soon you cannot trust doctors too , not because they want to cheat, but because they do not know much medicine.

    What has the world come to?

    Like

  11. romerz
    May 24, 2010 @ 02:11:34

    If you really dig deep into the core of most of the problems faced in this country, it has something to do with racial politics.

    Anything touched by the BN government for eg civil service, GLCs, etc., almost always talk about quotas and never about the best brains available. At best we get a combination of both.

    What makes it worse is when such institutions or GLCs err, they cannot be criticized because such criticisms will be played up by UMNO/BN as an attack on the Malay race which can lead to racial strife which none of us wants.

    So how can weaknesses be recognized and strengthened when we can’t even freely discuss the problems facing us? For these reasons many Malaysians who are capable of making a difference in Malaysia have given up and left our shores thus compounding the problem further with a shrinking talent base.

    Race politics is the biggest stumbling block to a progressive Malaysia and the only 3 political parties that are race-centric are from BN!

    Like

  12. Phua Kai Lit
    May 24, 2010 @ 09:06:26

    Dear Dr Hsu

    Please take a look at what YB Tony Pua posted on his blog:

    http://tonypua.blogspot.com/2010/05/nem-anti-competitive-circulars.html

    (this kind of govt-created monopoly/oligopoly reminds me uncomfortably of the Philippines
    under Marcos)

    Like

  13. clearwater
    May 24, 2010 @ 09:56:54

    You cannot invest in Sime Darby anymore simply because it has through the years been transformed into another GLC with its attendant culture. Just look at its current shareholding and management structure. Talk to some ex-Sime Darby old hands. The old SD is no more. After this latest fiasco, it will surely be downgraded by analysts and sold down by foreign shareholders.

    Like

  14. CYC
    May 24, 2010 @ 10:41:26

    Too many GLCs in Bursa simply a road block to foreign fund thus it become a non entity and out of international investors radar. Basically, there is only ONE big player who play on his own in KLSE – EPF.

    So, Najib said international fund managers responded positively to his NEM reform is simply BULLSHIT.

    Our “economists” and “financial experts” trumpeting the 10.1% growth for Q1/10 as the highest growth achieved in past 10years. They conveniently ignore the fact that many other Asian countries achieved the same if not better for Q1/10 simply due to lower denominator. Taiwan registered the highest growth in her past 30 years and Singapore over 15% for the same period.

    GLCs basically work towards achieving KPIs set by themselves. A glaring example is most of them depend on disposing assets especially land to boost their profitability. TNB and Telekom were 2 of the leaders in this trade. Unfortunately, many of their deal failed recently as they could not procure approval to convert the status of their land.

    Malaysian are so limited in investment option now since the stock market has lost its zest, they began to channel their cash into property. That possibly explained why property price soared over the past 12 months without any other tangible push factors, I guess. But, again can this sustain when the number of expatriates who make up the largest source of potential tenants is declining? Or are they anticipating an inflationary push capital appreciation ?

    Like

  15. Lee H Heng
    May 24, 2010 @ 12:29:18

    No matter how great the company is, if i know that it was run by a bunch of unethical, greedy, corrupted so called executives, i will not look at it one more time. In Bolehland, one have to be very very careful when investing in so called “blue” chip companies esp GLCs ran by people with practically no experience and knowledge of what their companies are doing. These CEOs are nominated just because they have connections with the politicians. Many of them just let their companies slide and have no clue where they are heading. As long as their pckets are full $$$$$$$$$ who cares. At the end of the day, the government will eventually bail them out. Of course, with our poor rakyat hard earned money.
    Sigh………..

    Like

  16. clearwater
    May 24, 2010 @ 15:07:17

    With FD interest rates at 2.5% and probably negative after adjusting for inflation, with little trust in listed companies, what is there for the individual to invest in, except property, in Malaysia? Much of such investment is speculative in nature.

    The chickens will come home to roost when economic effects of all that stimulus money are exhausted, banks rein in lending, interest rates start to rise and the expensive real estate without tenants especially around KLCC area have to be put back on the market. This may take another year or so. Then there will really be a fire sale.

    Like

  17. CYC
    May 24, 2010 @ 16:18:58

    Appoint KTK as SD’s chairman lah. He likes to sit on the chair and be an armchair strategist but no hands on experience. This is what we called “Know leak” economy run by “Kow sai” executive.

    Just like Construction Industry Development Board (CIDB) headed by someone hardly known by industry players. So, there is no development but merely a levy collection as their prime function. Money collected channel to feed the bloated redundant organization rather than develop the industry.

    Then again, if we have Idris Jala overseeing KPIs, KTK still sitting at the same ministry for what? Holding pen to sign documents tirelessly prepared by Idris ? Real waste of tax payers money.

    Conclusion, its not only the CEO of GLCs perform poorly but the whole cabinet who act as the guardian of the nation’s wealth. Corrupt and Rot beyond redemption.

    Like

  18. kl_boy
    May 24, 2010 @ 16:19:22

    Just in response to the earlier comment on Big 4 involvement in all accounting scandals. I would like to add that they are dozens of lapses in the smaller medium sized firms as well. This is particularly apparent when there is a lack of willpower amongst the authorities to enforce the regulations in force. For example, in Msia how many high profile corporate figures were brought to court for their lapse in directors duties. I can count all this with 1 hand only. If there SC and Bursa lacks the guts to take on the corporate and political heavyweights, this acts will forever continue.

    Like

  19. A true Malaysian
    May 24, 2010 @ 16:20:16

    Check Sime Darby with Wikipedia, I got this http://en.wikipedia.org/wiki/Sime_Darby

    In 1910, British businessmen William Sime and Henry Darby established Sime, Darby & Co, a fledgling player in the lucrative rubber industry. The company later diversified to cultivating palm oil and coca and met with enormous success.

    William Middleton Sime was a 37-year-old Scottish adventurer and fortune seeker. He had two failed ventures behind him – one in import-export business and the other in coffee plantations – when he left his job as a mercantile assistant in Singapore.

    Henry Darby was a wealthy 50-year-old English banker who owned property in Northern Malaya.

    It looks like spirits of Sime Darby founders are gone under Malaysian hands, but they still prefer this colonial name, mismatched some where, right?

    Try walk into its hospital in SJ, …… Find out yourselves how you feel. I am not asking you to be sicked and walk in there. Healthy person also can just pop-by.

    Like

  20. agerakanmember
    May 25, 2010 @ 14:10:36

    Today’s oriental dailym there is news that there is a movement “Geraklah Gerakan” which is aimed at KTK. I will paste it here:

    http://www2.orientaldaily.com.my/read//2r8M0abX1FZi0k0R0X2d5BWZ2VI45Mn5

    民政黨啟動衝擊許子根
    (吉隆坡24日訊)民政黨內部發起的「啟動吧,民政黨」(Gerakkanlah Gerakan)不僅開始凝聚一股力量,一些中委對黨主席丹斯里許子根的領導方式表達不滿,惟還不至於演變成「倒許子根運動」。

    這場「GG」寧靜革命已在數週前悄悄通過電郵方式進行,列出民政當前的問題、危機和願意,收集黨員對領導層的意見,重新召喚昔日的創黨理念和精神。

    一些不願透露姓名的中委向《東方日報》表示,許子根的領導已經多次被黨內人士批評,甚至他擔任檳州首席部長期間的領導方式也被人炮轟。

    「他缺乏魄力,做事太謹慎,太多顧慮了,結果很多東西都沒辦成。外人看不到民政的存在,黨員們也感覺不到民政的活力。雖然一些黨領袖針對課題發言,但我們看不到民政在國家大課題的立場。」

    另一名來自隆雪要求匿名的中委說:「我大概知道誰發動,他來自檳城;可能正點火,看看會否燎原…」

    他不願透露對方的真正身份,因為自己不確定對方是否真的躲在背後策劃。

    他說:「我能說的是,一些中委的確對主席的領導有意見,我們希望他可以改變方式。」

    他指出,黨員們都希望能夠在電視上看到許子根以主席身份發言,而且其身後有民政的黨徽。

    此外,民政黨總秘書鄧章耀受詢時表示,該黨奉行民政政治,允許黨員討論黨的方向,此舉不會影響黨的穩定。

    他說:「這(GG)並沒有錯,他們表達對領導層的不滿時免不了的。若他們正面看待民政的未來,這是黨的健康發展。

    只要不進行人身攻擊,沒把黨拖入水溝內,我們都允許他們表達意見。至於發動者有什麼動機,我就不曉得。但是,不至於發展到倒許子根的地步。」

    發動者來自檳城

    他承認,發動者來自檳城,但卻否認發動者與民政黨副主席拿督斯里謝寬泰有關。「我認識他,他並非搞派系的人,沒擔任分部主席,也不是謝寬泰的人,他是協助黨進行資訊工藝工作的人。」

    針對一些中委認為,每月的中委會會議結束後應該召開記者會的建議時,他表示,中委會將記錄在案,若有必要將在下次中委會後舉行記者會。

    「黨主席認為,這幾個月的中委會都討論不適合外傳的黨內事宜,所以沒舉行記者會。不同領袖有各自的方式,當然一些中委不同意他(許子根)的方法。」

    民青團團長林時彬受詢時說,低調的許子根讓人民以為民政在大課題上,缺乏立場。他說:「開會後沒有交代立場,未來的中委會結束後應該要舉行記者會。」

    此外,民政黨署理主席拿督鄭可揚表示,該黨積極看待「GG」運動,黨員向中央傳達訊息,檢討過去兩年的弱點和不足。他自己也加入該運動。

    他說:「我們積極看待問題,如宣傳很弱和缺乏鮮明立場。許子根的謹慎方式,希望解決問題後才發言,但是人民以為我們沒做工,他們不能等了。」

    Like

  21. CYC
    May 25, 2010 @ 14:58:25

    No fuel, how to gerak. Go invest RM1 in Sports Toto, Vincent Tan may help u to generate a couple of million. Don’t say there is nothing to invest in Malaysia, Dr Hsu.

    But no people, how to gerak. Buy lah ! RM50 per session plus free makan, a lot of people willing to go one. Another way to energies the economy.

    Why call it GG, sounds like pig pig in cantonese. Are they identify themselves as one of the G.

    Even u try to gerak it, but u r not the driver. Only UMNO is the licensed driver, according to Vell Paari. Nanti kena saman!

    Why waste time, just follow my advice : conduct a survey among the youth, see how many still think Gerakan is relevant. so much easier than GG campaign. Less costly, nobody laugh at u even if u fail get the desire result.

    Like

  22. klm
    May 25, 2010 @ 16:46:43

    MIC has the GAS (the vellu) campaign. Gerakan has the GG (or piggy or roast KTK) campaign. BN is in turmoil.

    Like

  23. frank
    May 25, 2010 @ 19:03:19

    Hahaha…GG?

    Is it the abbreviation for Good Good or Yeah Yeah in synonym?

    I remember that there’s a very popular Singer in Taiwan by the name of Gigi and probably this GG group is the fans of Gigi and they wish to give up political charade and join the show bitz to entertain the voters cuz tak boleh cari makan?!

    Would it be too late now for the chief Gelakaner to woosh his head out just a little from beneath the sarung and take a snuff of fresh air?!….

    Like

  24. Ken
    May 25, 2010 @ 21:37:28

    Can somebody translate the ‘Geraklah Gerakan’ article? Thanks.

    Like

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