THERE are strong indications long-term foreign funds are already poised to return to the KLSE as both political and economic factors are favourable for their return, fund managers said as the KLSE Composite Index (CI) broke through the 750 barrier yesterday.
They said the news of Standard & Poor’s raising of Malaysia’s long-term foreign currency sovereign credit rating to A- from BBB+ provided the impetus for the CI’s 11-point gain to 759.
The most upbeat among them said this was but the start of what could be a much larger influx of funds that would drive the CI beyond the 800 mark by year-end, and even the less sanguine were encouraged by the positive sentiment the upgrading had created.
In a trading day sizzling with euphoria, market talk was that the funds were already flooding in and “the only questions are how much more and for how much longer,” as one fund manager put it. The recent spate of good news has certainly helped fuel it.
ING Financial Markets head of research in Malaysia Uday Jayaram said the reaction of both the bond and equity markets had been positive, and this was very good news. “We are certainly positive on the market too,” he said.
The company was the latest to change its outlook on the KLSE when it upgraded Malaysia to overweight from underweight last week, and upped its holding of Malaysian stocks to 9% from 5% of its total Asian (except Japan) portfolio.
JP Morgan’s senior regional economist Rajeev Malik said the investment bank moved Malaysia to overweight from market weight in its EMBIG model portfolio – also last week. “And we have been overweight for Malaysia in JP Morgan’s JACI model portfolio,” he added.
Rajeev said he agreed with the S&P upgrade yesterday as it was justified in the light of Malaysia's healthy external liquidity, an expected smooth political transition at end-October, and renewed emphasis on fiscal consolidation as signalled in the budget announcement last month. “Their views are in line with our expectations,” he added.
Mayban Asset Management chief executive officer Amin Rafie Othman said he was not surprised foreign funds were looking “very seriously” at upgrading their Malaysia ratings as the KLSE had been laggard compared with other regional markets. “Most of them are really under-exposed to Malaysia, and that could change,” he said.
As at the end of 2002, reported foreign portfolio shareholdings in 49 major stocks stood at some RM40bil, almost unchanged from the previous year. This year, however, could prove to be a turning point.
Amin said interest was already growing among funds based in the region, such as those from Singapore and Hong Kong, while those from Europe and US could follow suit later.
Prudential Unit Trust chief investment officer Lynn Cheah said the KLSE would experience a strong fourth quarter due to a combination of positive factors like the country’s credit outlook improving, and equity risk receding with the expected smooth transition of prime minister to Datuk Seri Abdullah Ahmad Badawi from Datuk Seri Dr Mahathir Mohamad.
Cheah said foreign funds would likely concentrate their holdings on index and big cap stocks.
She said a good gauge of the “tremendous interest” of these funds in Malaysian equities could be seen in the tranche of shares that were three times over-subscribed for the listing of Astro All Asia Networks plc.
Not everyone was fully convinced, however. Although remaining positive on the Malaysian market, CMS Dresdner Asset Management Sdn Bhd executive director Raymond Tang recommended caution in the belief that foreign funds were returning in a big way.
Tang said it could be too early to make an assessment. “One swallow does not a summer make,” he said, quoting Aristotle.