Where art thou Valuecap?


  • Business
  • Saturday, 12 Apr 2003

BY P.W. THONG AND RUBIN KHOO

WHEN news came out that Valuecap Sdn Bhd commenced its operations in mid-January, a rally was sparked on expectations that the market was going to receive the much-needed support.  

The investment agency has after all been allocated RM10 billion to invest in local stocks.  

In fact, the stock market skyrocketed the day (January 13) ValueCap was reported to have entered the market: the Kuala Lumpur Composite Index (CI) surged by nearly 2.5 per cent. 

The CI continued to rally for another 10 days to reach a high of 675.9 before it succumbed to worries over an impending war between US and Iraq.  

Investors take comfort that Valuecap is around to buy.

All in, news of Valuecap entering the market had helped the benchmark index to rise about 40 points, or 6.3 per cent.  

Well, it's been three months since then and the question that has to be asked now is whether the initial euphoria was justified.  

Until today, no one is quite clear how active Valuecap has been in the market and how much it has spent.  

Calls to the asset management firm jointly-owned by Khazanah, Permodalan Nasional Bhd (PNB) and Kumpulan Wang Amanah Pencen Malaysia has drawn a blank. 

“There isn't much information in terms of its operations,” says one local head of research.  

“There are two angles you can take. One point of view is that Valuecap has provided the market with an invisible hand. In the event of stocks being bashed down, it will be around to buy these stocks.  

“So, in a sense, it provides a bottom and investors are taking comfort that Valuecap will be around to buy.” 

“The initial euphoria in January overshadowed its activity,” says Raja Indra Putra Ismail, deputy head and equity strategist at Mayban Research.  

“But Valuecap didn't use all it bullets at the time.” 

Valuecap officials have in the past said the agency would invest in stocks on the local bourse over a period of time depending on the value of stocks and timing of opportunities.  

Reports have suggested that Valuecap has so far invested RM1 billion of the total amount allocated to them. A move, says Raja Indra, which indicates that the agency has kept to its original mandate. 

“Obviously, they didn't chase stocks. Valuecap should not be seen to be supporting the market. In terms of volume, anything less than 250 million will not sustain the market. In that sense, it is not there to generate volumes.  

“It is pointless because the market is more powerful as can be seen by the current external sentiment. The fact that they didn't use the bulk of funds means that they are preserving their ability to buy at lower levels,” Raja Indra adds. 

“The role is important,” concurs an analyst, “but more important than that is the execution which means that there must be sufficient transparency.  

Transparency is an issue that continues to cloud the perception of investors and something that has been fuelled, perhaps, by the fact that the body operates with great confidentiality.  

But as industry observers say, Valuecap is in a difficult position where the dissemination of information is concerned. 

“There are no similar funds which disclose the kind of stocks they buy or how much they invest,” says a research head.  

“But at the end of the day, perhaps they should publish annual reports like unit trust companies, outlining its top ten stocks,” he says. 

Given the limited information at this point, industry players can only guess as to what stocks are being targeted by the investment body.  

Perhaps, blue chips like Tenaga Nasional Bhd and Malayan Banking Bhd, says, Raja Indra, which were trading at relatively cheap levels. The next step would probably have been to acquire fundamental stocks.  

But having covered the top brass, he supposes that the agency would now be searching lower, going through middle-tier stocks. 

If its role were to add vibrancy to the market, Valuecap's inception would certainly be apt at this point in time. For months the local bourse has been plagued by the Iraq war and if that wasn't enough to contend with, the severe acute respiratory syndrome (SARS) outbreak has provided yet another dampener.  

But with the war drawing to an end, could there be a relief in sight? Some are already anticipating a relief rally but others are not quite convinced. 

“The turn of events has been really fast,” says Raja Indra. “At first we thought it was going to be a short war and then pessimism set in. Our concern now is on the US economy, whether it will fall back into a double-dip recession, and if so, how fast will it pick up.” 

Mayban Securities has downgraded its gross domestic product forecast for the year to 4.1 per cent from its earlier projection of 5.7 per cent.  

As a result, expectations for the CI have also been revised.  

Mayban Securities is now expecting it to reach a fair value of 770 compared to 840, which was set late last year as earnings are expected to be further affected by the SARS outbreak.  

But even so, at 770, the CI still has 140 points or 22 per cent upside from its current level of 630.  

A senior dealer said the existence of Valuecap gave investors an important psychological comfort. 

“We may never know how well or bad the KLSE would have performed in the absence of Valuecap.  

“But the fact that it does exist has helped maintain market confidence. Investors are more willing to pick up quality stocks after knowing that the downside of these stocks is well cushioned.  

“Look at South Korea, the CI used to track the Kospi closely, and sometimes lagging behind. But thanks to the “Valuecap effect,'' Malaysian stocks have largely outperformed Korean stocks this year,'' says the senior dealer. 

And if it’s true that Valuecap has only used up a fraction of its mandated RM10 billion proceeds, then perhaps the KLSE may have yet to see the big push that every investor is waiting for. 

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