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AWise: Malaysia After Mahathir
By Andrew Ho

11/5/2001 9:24 pm Fri

[Mahathir gagal melakar seorang pemimpin pengganti yang teruji dan mampu untuk memimpin Umno selepas beliau pergi. Ini menyebabkan masa-depan Umno semakin malap lagi jika beliau diundurkan dari persada kerusi presiden nanti. Umno ketandusan bakat kerana semua yang berbakat sudah ditumpulkan oleh Mahathir sendiri. Mungkin kerana itu Mahathir mahu bekerja sampai mati. Dengan Mokhzani sepenuh masa berguru di sisi, dia seperti sudah tidak mempercayai sesiapa lagi. Akan bermulakah satu dinasti di bumi Malaysia ini?
- Editor

Malaysia After Mahathir

By Andrew Ho, AsiaWise

9 May 2001 10:30 (GMT +08:00)

After ravaging other ASEAN (Association of Southeast Asian Nations) countries, the politics of business seems to be rearing its ugly head in Malaysia. Thailand, the Philippines and Indonesia have each seen changes in leadership over the past 24 months, with Indonesia heading for another change if the legislature succeeds in impeaching President Wahid.

As for Malaysia, rumors that the Prime Minister, Dr. Mahathir Mohammed would not complete his full five-year term started surfacing last year. That speculation was reinforced when Dr. Mahathir announced in the middle of the year that the Deputy Prime Minister, Datuk Seri Abdullah Ahmad Badawi (known as Pak Lah), would be his successor -- the first time Dr. Mahathir had designated a successor during his two decades in power.

When Finance Minister and long time friend of Dr. Mahathir, Tun Daim Zainuddin announced that he would be taking a 'long vacation' -- a two-month break starting April 23, the rumor mill went into overdrive, with talk that Daim's spring break was setting the stage for Dr. Mahathir's exit.

To top it off, Dato' Mokhzani Mahathir, the eldest of Dr. Mahathir's three sons announced last month that in order to protect his and his father's name, he was selling his stakes in Pantai Holdings Bhd and Tongkah Holdings Bhd and exiting the corporate scene. That leaves Mirzan, Dr. Mahathir's second son, as the sole family member with any corporate interests.

Political observers also note that Dr. Mahathir has repeatedly called for an infusion of new blood into UMNO's leadership, and that some recent moves suggest he recognizes the need for a reduction in 'money politics.' In the latest of a string of events, Dr Mahathir has backed the suspension of six party members found guilty of 'money politics' by the United Malays National Organization's (UMNO) disciplinary council last week. Dr. Mahathir will suggest that UMNO's supreme council, scheduled to meet this Saturday, endorse the action.

"We must clean up the party as we don't want people to be disgusted with us because our leaders are chosen in a corrupt manner", he added.

The combination of these developments have led to mounting speculation that Dr. Mahathir will step down this November and hand over the administration to Pak Lah.

So what does all this mean for the "Mahathir risk premium" Malaysia has been slapped with since the Asian crisis? There's no doubt in the investment community that the stock market would rise on news of Dr. Mahathir's resignation. However the rally would be short-lived as investors awake to morning-after concerns about the country's political stability as it adjusts to new leadership after 20 years of Dr. Mahathir.

The likely scenario is market limbo as investors wait to see what happens -- especially if there is a free-for-all over the premiership. Given Pak Lah's current position as the designated successor, he would likely be able to hold the number one position until the 2004 general and party elections.

There is concern however that Pak Lah would not be able to unite UMNO behind his leadership -- most observers expect discord within the party to widen as various factions jockey for the top posts in the post-Mahathir party. Among the contenders: Defense Minister Datuk Seri Najib Razak teaming up with Pak Lah; and a faction composed of Tan Sri Muhyiddin Yassin, Minister of Domestic Trade & Consumer Affairs and Tan Sri Mohammed Taib, former Mentri Besar of Selangor.

There has also been talk that party veterans Tan Sri Musa Hitam, a former Deputy Prime Minister, and Tengku Razaleigh Hamzah would be 'recalled' to provide the necessary leadership to the party -- thus making it a three-cornered fight. So far, the master politician, Dr. Mahathir, has denied these rumors.

The one thing that is certain is that the Malaysian market has been capped due to political concerns. Some stocks however would be likely to suffer if Mahathir exits stage left. The stocks at greatest risk being those with close political links to the present government. The Renong group of companies tops the list and includes United Engineers Malaysia, which owns and operates the highly profitable North South Expressway concession, Faber Hotels, Propel Bhd, Crest Petroleum and ParkMay Bhd. Malaysia Resources Corporation Bhd would be on the list as well. It has two media giants under its corporate wings -- television station TV3, and daily newspaper group The News Straits Times Press.

Companies that are dependent on the government for juicy construction contracts and concessions will also have to look at diversifying their businesses. Construction companies should start reviewing their business strategies in preparation for a new government.

They might want to look at Gamuda Bhd -- a company with the smarts to have locked in long-term contracts in order to move away from dependence on government. In addition to its three toll road concessions, a fourth in the pipeline and a lucrative water supply concession, the company is making a foray into the operations and maintenance of water systems to beef up its earnings base.

The safest bets in any potential political storm remain the traditional blue chips. The favorites include Tenaga, Telekom, Sime Darby, British American Tobacco, Malayan Banking, Commerce Asset Holdings and assuming the technology sector recovers, Unisem and Malaysia Pacific Industries. These companies should fare better given their size and neutral political stance.

Some stocks may even get a boost with the impending changes. For example, there have been fears that Commerce Asset would be forced to extend loans to the beleaguered Renong Group by virtue of Renong's 13% stake in Commerce. However, with a shift in power at the top, Commerce could be relieved of any political pressure to make 'bad loans' to the Renong.

However, if the succession proves to be long and drawn out -- or Mahathir's successor turns out to be as unpredictable as his predecessor, most foreign investors will be likely to remain right where they are at present -- far away from Malaysia.