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WHY BOTHER ABOUT THIS THING CALLED ECONOMICS?

The forecast for the Current Account deficit has been revised upwards to 5.9% of GDP. The M3 measure of money supply has grown by 19.7% year-on-year. Income disparities is forecast to rise under the Seventh Malaysia Plan. 80% of Malaysian industries are oligopolistic. Official policy on the ringgit is to allow it to float freely. The Minister of Finance aims for a bigger Budget Surplus this year to boost Gross National Savings to 41% of GNP.

Why should these things matter to ordinary stock investors like you and me? Probably not a lot in the immediate future; probably not a lot too six or seven months down the road. They may even seldom be useful in deciding which particular counters to buy or sell. Yet economic news continue to exert a powerful influence upon the general trend of the KLSE. And no wonder - the KLSE is after all a manifestation of the economy itself. Those pieces of paper, the share scripts that exchange between hands in the millions everyday, on their own they perhaps have no more value than your daughter's school exercise-book. What drives us all to acquire them is what they have a claim upon: the company's assets. Yet, upon further introspection, we may ask: What governs companies' decisions to acquire these assets? The economic climate is certainly not the only factor, but it nevertheless remains amongst the most potent decision variables - if not the most potent - management takes into account when deciding upon the timing and quantity of the acquisition of these assets. After all, which profit-maximising firm would want to embark upon an output capacity expansion at the beginning of a recession? So, I would imagine that knowing about economic issues does affect ordinary investors like you and me. Perhaps even more so because, unlike institutional investors, we do not have the ability to properly diversify our portfolio and as such we would be worse hit in the event of a bearish outlook for the KLSE. Knowing about the economic climate and how it interacts with the stock market may thus help.

Of course, some people find Economics interesting in its own right. For them, questions like: 'Why does the economy boom sometimes and goes bust afterwards?' Or, 'How is it that South Korea and the Philippines, two countries with almost identical economic circumstances in 1960, ended up with such different standards of living? What lessons can we draw from the experiences of both countries? Can we apply them to the rest of the world to help developing countries? ' Or, 'Can there ever be hope of Malaysia catching up with the technological leaders of the world?' 'How will China's rising economic fortunes affect the world order in fifty years' time?'

Unfortunately, economists are better at posing questions than answering them. And when they do conjure up an answer, they are often contradictory. This sometimes has led to disillusionment in the subject. I hope this will not discourage the sceptical reader. If the profession appears to proffer a multiplicity and often opposing solutions to a particular problem, it is only because it is dealing with complex phenomena; the study of economics is after all a study of how unpredictable human beings organise their limited resources to yield the best outcome.

In this column, I hope I shall be able to introduce and interest you in some of the economic issues that face our country today, whether it is your interest lies in the economic implications upon the KLSE or whether that interest is for the sake of Economics in its own right. Notice however that I have refrained from using the word 'answering' here. For to do so would be irresponsible without proper quantitative studies. More importantly, however, many of these issues are still unresolved and there is a sea of academicians and researchers working hard to try and do so. Answering complex questions would obviously take time, and so perhaps the best that one can do in a column like this is to present alternative arguments and leave the reader to make his or her own mind up.

Thank you.
Yours sincerely,

RASHDAN M RADZI