Macroeconomic environment of bull markets in Malaysia

Abstract

Purpose The aim of this paper is to investigate the circumstances and events surrounding bull runs in Malaysia from 1990 to 2015. The research question posed here is: What were the historical circumstances and events surrounding bull runs in Malaysia? Design/methodology/approach Case study approach is used. This research resorts to multiple resources such as academic journals, macroeconomic statistics, official publications, stock broker reports, annual reports of listed companies as well as articles from regional newspaper and magazines. Findings The results show that the bull runs in recent years happened with lower volatility after the Asian Financial Crisis. It can be conjectured that the specific environment in which the bull runs occurred can be somewhat different from period to period. Based on stylised facts and historical evidence, this study identified five major themes that were behind the bull markets in Malaysia, which include capital flow, spill-over effect from global development, change in ratings, speculative activities and investors’ sentiment, as well as government policies announcement. The findings have practical implications for investors who seek to understand and predict stock market boom through lessons learned from historical perspective. Research limitations/implications The analysis in this paper may have limitation, as the facts gathered are from secondary sources, which sources are derived from the observations of others. Therefore, secondary sources inevitably reflect the assumptions and biases of the people who wrote them. As the availability of data is limited by factors that are not under the control of the researcher, results may likely be limited in their generalizability. This case study does not attempt to establish causality or relationship between macroeconomic variables and stock prices. Further studies would therefore be necessary to examine the evolving nature of the relationship that may exist. Practical implications The findings of this study have significant policy implications for Malaysia, and also for other emerging markets. First, a prudent macroeconomic measures and concerted stance on fiscal, monetary and exchange rate policy to improve fundamentals and smooth volatility in the business cycle is vital for a bullish stock market. Second, the stock market derived significant benefits from openness to foreign capital and its resilience can be enhanced by fostering deeper and more liquid capital markets with diverse institutional investors, including domestic and foreign participants. Third, the environment that affects a stock market could be related to the political, regulatory and global environments. Malaysia stock market is susceptible to extreme events, capital flow, speculative activities and government interventions. Having a good grasp of which themes are operative at any point in time is central to investment decision making. Continuous rebalancing of portfolios based on information arriving in the market is also vital. Originality/value Previous studies on Malaysian stock market movement focus on quantitative analysis based on macroeconomic variable. This research is original in terms of giving background information and additional context to explain phenomena missed by quantitative research methods. The construction of quantitative model is also constraint by the measurability of non-quantitative data and data with different frequencies (such as annual, quarterly and monthly data). Therefore, it is important to contemplate the importance of non-quantitative factors, such as political, legal, regulatory and governance considerations. This study seeks to fill in this void.