False Confidence or Just Plain Gungho?

KUALA LUMPUR: Malaysia’s central bank has become more confident the South-East Asian nation is recovering from the global recession, Credit Suisse Group said, citing a meeting with deputy governor Datuk Ooi Sang Kuang.

The central bank’s “view is that the signs of an economic recovery seem evident,” Danny Goh, an analyst at Credit Suisse, said in a report yesterday.

It “is only unsure on whether the economic rebound will be modest or sharp,” he said.

Malaysia’s economic contraction eased to 3.9% last quarter from a 6.2% decline in the first three months, and policy makers expect gross domestic product (GDP) to resume growth at the end of the year.

The country’s export and manufacturing slump has abated as economies from Singapore to China emerge from the world’s deepest recession since the Great Depression.

The US$195bil economy may post “mild positive or negative GDP growth” this quarter from a year earlier and may expand in the next three months as the government’s stimulus measures take effect, Credit Suisse cited Ooi as saying.

He had said in June that the economic improvement in the second quarter may not be sustainable, according to the report.

Ooi also noted that retrenchments had slowed and there had been evidence of re-hiring in some industries, Credit Suisse said.

The central bank’s monetary policy would be “supportive of growth,” and the reductions in the benchmark interest rate in the past year had worked well in bringing about lower lending rates, Ooi was cited as saying.

Inflation was expected to remain “benign,” he said. Bank Negara, which has cut its benchmark interest rate from 3.5% in mid-November to 2% to revive growth, may lower its inflation forecast for this year, Governor Tan Sri Dr Zeti Akhtar Aziz said on Aug 27.

The central bank kept interest rates unchanged for a fourth straight meeting last month.

Malaysian banks were well capitalised and banks weren’t under pressure to further strengthen their capital, Ooi was cited as saying. The worst appeared to be over for non-performing loans in the banking system, he said. — Bloomberg

Are Foreign Investors Back Yet?

Apparently, foreign interest in Malaysian stocks been felt over the past few months. Even so, analysts believe domestic equities are still not the priority for such investors.

This is because the defensive nature of the large cap stocks on Bursa Malaysia is perceived as a handicap for investors whose interest has been to seek out growth from the broad-based economic recovery globally.

TA Investment Management chief investment officer Choo Swee Kee told StarBiz that interest is there at all times. The keenness differs.

Choo, however, said there had been a return of interest to the Asia-Pacific region and Malaysia was seeing an increase in activity.

The interest by foreigners is reflected in the trading participation by them in the purchase of stocks in Bursa Malaysia.

As a percentage of trading by value, foreign participation has increased gradually since June when it accounted for 21% of the value of stocks bought for the month.

That percentage rose to 23% in July and 24% in August but was some way off the peak in December last year when foreign institutional investors accounted for 43% of the value of trade done in the stock market.

Local institutions had the largest share of trading with 46% of the value of trades in August. Retailers was next with 30%.

While Bursa Malaysia is seeing a rekindling of some foreign interest, the benchmark FTSE Bursa Malaysia KL Composite Index (FBM KLCI), however, is still a long way off in performance compared with the rest of Asia.

The FBM KLCI is the second worst performer so far this year in Asia after Japan. The index has gone up 39%, the second lowest percentage rise after the Japan’s Nikkei, which has risen a modest 17%.

Choo said the anaemic interest from foreign investors could be due to their preference in markets that were battered by the financial crisis on Wall Street and also the global recession.

“When they invest based on a recovery theme, they would prefer countries that have recovered more,’’ he said, giving examples such as China, Singapore and South Korea. Those markets are up 59%, 52% and 52% respectively this year.

While there is no broad-based foreign investor interest in stocks on Bursa Malaysia, which had recently attracted an “underweight” rating from Bank of America Merrill Lynch’s fund manager survey of emerging markets, specific stocks are nonetheless bucking the trend.

Perennial favourites such as Genting Bhd, CIMB Group Holdings Bhd, Public Bank Bhd, Axiata Group Bhd and a host of other blue chips, especially in the plantations sector, would find favour among foreign investors.

“There are buying but volumes are not indicative of their presence,’’ said OSK Investment Research associate director Chris Eng. “They are buying selectively.’’

Will we see a mini tsunami interest from foreign funds in Bursa? The best may yet to come.