This was the title caption for P. Gunasegaram's op-ed piece in Star Biz today. He discussed the dilemma of small capital markets like Malaysia's where the market capitalisation of one and one-half of a Wall Street-listed giant is equal to the value of the entire Bursa Malaysia.
The piece wondered aloud at the wonderment cum hatred that came with each flow and ebb of foreign funds into our little playground. Now, of course, there is an ebb tide. Hence, the op-ed piece.
The piece suggests the introduction of a capital gains tax. The suggestion is that the tax, just like the old Real Property Gains Tax, could be graduated, getting lower and lower and eventually diminishing to zero, say after three years of holding the shares. The initial tax rate could be say 40% of capital gains, falling to 30% in the second year, 20% in the third year and zero in the fourth year.
Pretty radical, huh? I make no judgment because it needs to be thought through. This blog has also made some radical suggestions before.
.
Long-term funds vs hot money
There are long-term foreign funds that enter Malaysia in the form of FDIs. The op-ed piece is not addressing these long-term funds.
It addresses the hot money funds that rushes in when there is a perceived under-valuation of sectors within the Malaysian economy and, specifically to the publicly-traded shares of the companies listed on Bursa.
These hot monies represent the type of foreign fund inflows that, during can easily be mistaken for Malaysia's growing wealth. For example, between 1992 and early 1997, Malaysia's economic managers thought that the hot money that had been circulating in the KLSE were long term foreign funds.
Economic plans were put in place where the centrepieces were the Bukit Jalil Sports Complex, the new capital of Putrajaya and, KLIA.
Then came the collapse of the Thai economy that had heavily borrowed US Dollar-denominated loans. And, everything fell down.
And so, consider these questions that have swirled in my mind from time to time:
What is the economic value of hot money to Malaysia?
What is the economic value of an active stock market to Malaysia?
The piece wondered aloud at the wonderment cum hatred that came with each flow and ebb of foreign funds into our little playground. Now, of course, there is an ebb tide. Hence, the op-ed piece.
The piece suggests the introduction of a capital gains tax. The suggestion is that the tax, just like the old Real Property Gains Tax, could be graduated, getting lower and lower and eventually diminishing to zero, say after three years of holding the shares. The initial tax rate could be say 40% of capital gains, falling to 30% in the second year, 20% in the third year and zero in the fourth year.
Pretty radical, huh? I make no judgment because it needs to be thought through. This blog has also made some radical suggestions before.
.Long-term funds vs hot money
There are long-term foreign funds that enter Malaysia in the form of FDIs. The op-ed piece is not addressing these long-term funds.
It addresses the hot money funds that rushes in when there is a perceived under-valuation of sectors within the Malaysian economy and, specifically to the publicly-traded shares of the companies listed on Bursa.
These hot monies represent the type of foreign fund inflows that, during can easily be mistaken for Malaysia's growing wealth. For example, between 1992 and early 1997, Malaysia's economic managers thought that the hot money that had been circulating in the KLSE were long term foreign funds.
Economic plans were put in place where the centrepieces were the Bukit Jalil Sports Complex, the new capital of Putrajaya and, KLIA.
Then came the collapse of the Thai economy that had heavily borrowed US Dollar-denominated loans. And, everything fell down.
And so, consider these questions that have swirled in my mind from time to time:
What is the economic value of hot money to Malaysia?
What is the economic value of an active stock market to Malaysia?
3 comments:
Hi
I think a capital gains tax is long overdue. IT will curb short term speculation.
We still have a property gain tax right?
Allow lay-me to make another comment:
To answer the question posed, we may need a factual matrix:
- transparent data identifying who is in for the long haul, and who for speculation only;
- transparent data on identities of proxies which will obviously be used to bypass the above transparent data;
- transparent data on who are playing the other market - the currency market - which can have an effect on what is earned or lost on the stock market.
Secondly, i understand the funds investors look at our bourse by itself weighted on a basket formed of the neighbouring bourses in SEAsia. So if we apply restrictive capital gains tax, they may just move their velocities elsewhere; if that happens in an underweighted market, our counters may sink even lower as price to pay for increased stability; if that happens in an overweighted market, our counters...go back to aforementioned sentence. To those big-time speculators, one counter in one country is no different in look from another in another country; all they're keen in is best sell position. Maybe they have some calculator to add the envisaged capital gain tax to be incurred into the momentum of the presell push-up of the target counter and then sell ahead of herd to recoup all, profit plus tax incurred. Does this seem incredible?
..don't shoot too accurately, i'm just filling up this vacant box..
;P
jed
I'm happy to say that RPGT was stopped in April last year :) But I'm not too sure I agree with capital gains tax, though.
walla
Too true. Hot money is amorphous. It needs to be borderless to achieve the parasitic effect of feasting on the value created by economic workers of each country.
But we can't ignore the irony that the hot funds actually come from very large pension funds in Western countries, larger versions of our EPF.
There has to be a better economic model to deal with pensions and savings.
Post a Comment