BT, Published February 5, 2007

KL stock market expected to outperform this year

CAUGHT along in the wash of liquidity which has pushed the Dow and other regional bourses to new highs, the Kuala Lumpur stock market finished last Friday some 20 points or 1.69 per cent higher. In little over a month, the stock market has breached 1,200 points - the level targeted by most analysts for the year.

Thus far, it has been one of the best performers among regional bourses, a nice change from previous years when it doggedly lagged everyone else. Then, it seemed little could be said or done to sell Malaysian equities. Idea after investment idea would invariably be cut short by the delete button. With foreign interest on the rise, investment ideas are facing far less resistance among investors both foreign and local.

For months now, several themes have been driving Bursa Malaysia's market capitalisation up to hit RM900 billion (S$395 billion). The bio-diesel craze was one of the earliest themes, sending the shares of plantation biggies IOI Corp, Kuala Lumpur Kepong and PPB Oil Palms skywards.

Higher log and plywood prices saw investors scramble after timber stocks Ta Ann, WTK Holdings and Lingui. Steel was not to be outdone, with stocks bearing the word 'steel' jumping accordingly. Kinsteel, Southern Steel and Malaysia Steel Works were cases in point. Cement manufacturers had their turn following a hike in the ceiling price of cement late last year, with Cement Industries of Malaysia (CIMA), Lafarge and YTL Cement rising in turn.

Mergers and acquisitions in banking was another popular theme, with Ambank, RHB and Affin shares getting fair play. Warrants of blue chips and top-liners have also had a good run. Sharp investors were quick to zero in on these warrants, many of which were trading at sharp discounts to their mother shares. If a theme is good, it's usually worth recycling. The share prices of developers in the south headed north last year when it was announced that hundreds of billions of ringgit would be ploughed into the Iskandar Region Development over the next two decades to transform South Johor into a bustling metropolis and a key growth engine for the nation. Any concrete announcement of planned investments is likely to see another round of South Johor play.

Although already into its third year, the reform of government-linked corporations continues to provide opportunities given that there are still floundering GLCs. Proton heads the list and by the government's own time-line, should be sealing an equity partnership with a foreign carmaker sometime in the first quarter. Other GLCs on the speculation list include the Time group of companies, Malaysia Airports and Faber.

Strong earnings

How the Malaysian market will perform for the rest of the year is anyone's guess. But at this point, most are guessing it will continue to outperform, bearing in mind corporate earnings have been strong while the ringgit is expected to appreciate beyond RM3.50 to the greenback. Moreover, unlike other markets, Malaysia has yet to revisit its historical peak of 1,330 last reached in the bull market of 1994.

Themes aside, an increasing number of Malaysian companies are also beginning to make their mark internationally. Genting struck it big in Singapore with the integrated resort, but since then Gamuda has clinched the Vietnam Yen So Park commercial development worth US$1 billion, and Zelan (previously Tronoh Consolidated) has won a RM1 billion power and water desalination plant project in Saudi Arabia. The winning bid from Zelan, a unit of MMC Corp, comes on the heels of MMC Corp's successful coup to develop the US$30 billion Jizan Economic City in Saudi Arabia with the Bin Ladin group.

BT, Published November 28, 2006

Lingering concerns about Malaysia

MALAYSIA is back on the radar screen of some big foreign investors - at least in the banking sector. Two big banking deals are in the works. First, AMMB Holdings has finally found a strategic partner in Australia and New Zealand Banking Group (ANZ) after countless failed talks with other parties since the late 1990s. Last week, ANZ said it will fork out slightly over RM1 billion (S$427 million) to subscribe to new shares and exchangeable bonds. ANZ could eventually end up owning 13.5 per cent of AMMB, which is controlled by veteran banker Azman Hashim.

Meanwhile, Hong Kong's Bank of East Asia may buy a minority stake in Affin Holdings, a Malaysian financial group controlled by the Armed Forces Fund. The parent of Affin Bank said it has approval from the central bank to start talks with Hong Kong's fifth largest lender.

These will not be the first major sales of local banking assets to foreign investors. Singapore's Temasek Holdings was one of the early players when it clinched a substantial stake in Malaysian Plantations, the parent of Alliance Bank, in 2005. Malaysia's more liberal approach toward foreign investment in banking may generate greater foreign interest in this long-protected sector. Wholly-owned foreign banks in the country - such as Singapore's United Overseas Bank and OCBC, Citibank and Stanchart - may be keen to acquire stakes in some of their local rivals. Even Singapore's DBS Bank - the only Singapore bank without a commercial banking licence in Malaysia - might want to take another look at opportunities in Malaysia's banking sector following the liberalisation. But despite the renewed foreign interest in Malaysian banking and notwithstanding that the Kuala Lumpur stock market is hovering at a nine-year high, not all is well. A particularly worrying sign is the fall in foreign direct investment (FDI), especially the inflow into the key manufacturing sector - the second biggest growth engine for the Malaysian economy. According to the United Nations Conference on Trade and Development's World Investment Report, Malaysia's FDI inflows shrank by 14.2 per cent to US$3.97 billion last year, from US$4.62 billion in 2004. And for the first time, Malaysia's FDI fell behind Indonesia, which received US$5.26 billion.

Another concern is the fast rising cost of living in Malaysia, after the overnight removal of a significant portion of petrol subsidies. Many businesses appear to have raised prices even though the headline Consumer Price Index figure remains relatively moderate at under 4 per cent. Interestingly, price tags for certain vehicles are now higher in Malaysia than in Singapore.

However, for investors - foreign and local alike - the biggest concern may be Malaysia's political climate. The recent general assembly of the United Malays National Organisation seems to have raised the political temperature in the country. One sign of this is the heightened and emotional debate about the preservation of Malay rights. If Malaysia is to regain its allure among investors, its leaders will need to find ways to mitigate the risks associated with such concerns.