What are the steps taken to reinvigorate the stock market in the country?

 

Please indicate also the extent of the stock market crash and its  affects  on the economy of our country and what are the main reasons for the stock market going bust.

 (a)

The Government took steps to rebuild investor confidence in the stock market through the action plan provided the National Economic Action Council (NEAC), which was announced on July 23, 1998. The main objective of the Action Plan is to stabilise the ringgit and the stock market, strengthening financial markets and economic fundamentals. The Government will also ensure a high level of transparency among listed companies. Directors are required to play a more responsible role in terms of corporate governance and based on the elements best practices.

   
 (b)

The stock market is one of the source for local companies to raise capital for business expansion, thus contributing to the nation’s economic growth. Continuous fall of the stock market has dampened investor sentiment and interest on the purchase of shares. This resulted in companies finding it difficult to obtain capital to grow their  business. The fall of share prices has also strained the companies that have local bank loans made by mortgaging company stocks. This incident has been difficult for these companies to continue their operations.

   
(c) Among the main reasons for the stock market decline are:-
   (i)

a sharp decline and the volatility of the ringgit since the beginning of the crisis which since July 17, 1997 until the present the value of the ringgit has depreciated by 38%;

   (ii)

non-encouraging income growth prospects of companies due to the economic downturn have caused foreign fund managers becoming less interested in KLSE and have reduced their investments in KLSE;

   (iii)

impact of market contagion in the region have continued to dampen the sentiment of foreign investors in this region, including Malaysia. Foreign investors still consider the risks of investing in this region are too high given the economic uncertainty, political, social, financial of these countries. Also the effect of contagion from other emerging markets like Latin America, South Africa, South Asia and Russia have also played a role; and

   (iv)

there exist a more attractive investment opportunities in the United States and the Europe region.

   
 (d)

To assist companies facing difficulties, Government has provided a number of programs, among others, setting up the Loans Monitoring Unit and the Business Problem Advisory Unit at Bank Negara Malaysia (BNM) and the Ministry of Finance to ensure that credit to companies are not affected; Small and Medium Industries Fund (TIKS) amounting to RM1.5 billion which commenced operations since January 1998 to provide loans to companies to continue operations and provide flexibility to non-Bumiputera companies to buy troubled Bumiputera companies to enable these companies to obtain capital to continue operations.