IN a commentary on Nov 26 last year entitled Big challenges ahead for KLSE with demutualisation, I noted that all participants in our capital market must play a more active role to make the KLSE a regional bourse that is innovative and internationally competitive.
Today I want to highlight the significance of the government’s initiative to set up a new investment agency called Valuecap Sdn Bhd, which will have up to RM10bil at its disposal to invest in Malaysian stocks.
According to an official statement yesterday, Valuecap has commenced business.
Earlier there was some confusion about this very important investment agency, due in part to an error in a foreign news report which named the Employees' Provident Fund (EPF) as one of the three partners in the venture.
This triggered off an angry denial by the EPF, which for good measure added that it “invests in companies with sound fundamentals, long-term growth potential and good management” and that it is not involved in activities to shore up the market or had used its funds to bail out ailing companies.
The three partners in Valuecap are Khazanah Nasional Bhd, Permodalan Nasional Bhd (PNB) and Kumpulan Wang Amanah Pencen (KWAP).
Each of them is expected to contribute about RM3.3bil to Valuecap, which is headed by Sharifatu Laila Syed Ali, who used to be head of investments at the EPF and, recently, with Tabung Haji.
The chairman of Valuecap will be someone from Khazanah – likely to be its chief operating officer, Datuk Anwar Aji.
Tan Sri Nor Mohamed Yakcop, special economic adviser to the Prime Minister, is instrumental in setting up Valuecap.
The idea of setting up Valuecap, I have been told, is two-fold. The first goal is to create a new investment agency that looks at Malaysian equities from a different angle – that is – to invest in stocks that are well-managed and have good growth and earnings potential and hold them for the long term. The second goal is to add liquidity to the KLSE.
The government feels that many of our local fund managers are unduly influenced by their foreign counterparts and tend to look towards foreign fund managers for direction.
That is not healthy.
Most foreign funds are mainly interested in short-term gains. They like a volatile market where they can dart in and out quickly to buy and sell stocks whose prices are temporarily, but grossly, out of line with their fundamentals for a variety of reasons.
Lately, the foreign funds have been selling Malaysian stocks. I am really stumped why they are doing it. Perhaps they are worried after reading reports about Jemaah Islamiah operatives in Malaysia. If that’s so, it shows how little they know about Malaysia.
Local fund managers – if they do their research properly – should not be afraid to take a contrarian view from their foreign counterparts because, being locals, they should know the country better.
Lately, many small investors have complained that they have given up on the local market. When Wall Street comes down, the KLSE follows suit. But when Wall Street goes up, the local market still struggles.
There is nothing fundamentally wrong with the Malaysian economy or the corporate sector or, for that matter, the local stock market. Local investors lack the confidence to invest, preferring to follow the herd.
Valuecap will invest in stocks for the long term. In doing so, it will not be unduly influenced by short-term situations. It is also very important for those running Valuecap not to succumb to political interference or considerations. Otherwise, the agency would lose its credibility.
I have been assured that the government and the three partners of Valuecap are determined to ensure that the agency will adhere to best practices in corporate governance and transparency. Valuecap's board of directors, and its investment panel and committee, will comprise experienced and highly res- pected professionals.
Investment decisions by the new investment body will be made on strict commercial criteria, and such decisions are “independent of its shareholders.”
It’s hoped that Valuecap will set a new benchmark for Malaysian investment funds.
I am sure some foreign commentators will be casting aspersions on Valuecap, that it is a government attempt to prop up the Malaysian stock market. Others will say that the government is doing it now because it wants to push up shares to raise funds for an impending general election.
These are people who do not want Malaysia to do well. Ignore them.
If Valuecap lives up to its name and the objectives behind its creation, it will over time be an influential and benign player on the KLSE.
The Malaysian stock market badly needs the two “L’s” – leadership and liquidity. Valuecap could provide these two crucial ingredients to help revive the flagging KLSE.