FUNDS are poised to be poured into the local stock market next week, with government-linked institutions like the Employees Provident Fund (EPF) and Valuecap Sdn Bhd expected to be among the big players. The trigger would be a convincing win by the Barisan Nasional in tomorrow's general election, analysts said.
From the way some research house reports were written this week – sounding more like political manifestos for the ruling coalition – profit-motivated voters are being left in no doubt which horse to back tomorrow if they want to see the prices of their shares go up on Monday.
Without exception, analysts – trying to outdo each other in bullishness – are anticipating a post-election rally on the Malaysia Securities Exchange if BN gains an even bigger majority this time.
The KLSE Composite Index (CI) closed 2.98 points higher at 904.45 yesterday after breaching the 900 mark on Thursday for the first time since 2000.
The local bourse is already the best performer in the region so far this year, but analysts believe it could do even better in the weeks ahead, with some saying that breaking the next psychological barrier of 1,000 points is achievable in a liquidity-driven market. In such market conditions, it seems, valuations take a back seat.
Some analysts suggested that government-linked companies could be beneficiaries, with the government likely to continue the restructuring of these entities, and selling down strategic stakes should it be returned to power with a stronger majority.
Most firms are also bullish on Malaysia's economy ahead of the release of the government’s gross domestic product (GDP) growth estimate on Wednesday. It is widely expected that this year’s growth estimate would be upgraded beyond the previous forecast’s upper limit of 6%.
Deutsche Bank is among those most bullish on the country. It said those who were bearish on Malaysia had “run out of excuses.”
“There are now fewer and fewer reasons: the economy is well on track for a firm recovery, the Government is tackling corruption, free-float in the market is gradually improving, domestic demand has picked up sharply, and capital controls no longer exist for foreigners, and valuations are undemanding,” it said, leading to the predictable conclusion: “We remain upbeat on the market.”
In a note to clients yesterday, CLSA Asia Pacific Markets said it had received news believed to be reliable from “a member of the inner circle” that “a liquidity rally” was on the cards.
According to CLSA, the EPF has mandated more money to local fund managers beyond the RM1bil it handed out to its 12 external fund managers last week (which raised the total funds managed externally to RM8bil). Valuecap, meanwhile, had been “instructed to participate actively in the market and is buying key index stocks,” the research house said.
Affin Research, too, thinks more funds would be pumped into the market with the EPF expected to mandate a further RM2bil to fund managers during the course of the year.
At the end of 2003, about 68% of the funds managed externally on behalf of the EPF went into equities, compared with 62% in June 2003.
“What is more pertinent is that total funds managed jumped 17% from RM68bil in June 2003 to about RM79bil at end-2003. As such, what has been placed in equities is really new money that has flowed into the system,” Affin Research said.
“This apparently is just a start ahead of the elections on Sunday,” CLSA added, predicting that big-cap stocks like Tenaga Nasional Bhd (TNB) could be among the prime movers soon after.
“Right after the elections, if the government wins with a bigger than two-thirds majority, the market will rally as a vote of confidence,” it added.
As the market had run ahead of valuations, the focus of investors should be big liquid and beta stocks such as banks, property and government-linked companies, CLSA said.
“With the government’s focus on restructuring its entities to unlock values with a view to selling down its stake to institutional investors and strategic partners, the likes of TELEKOM MALAYSIA BHD, Malaysia Airlines (MAS) and Sime Darby Bhd are attractive. TNB is looking more interesting post-election on expectations that there will be a tariff adjustment,” it added.
Affin Research said the successful placement by Khazanah Nasional Bhd of 300 million shares in Telekom (and the purchase of a 5% stake in the telco by Singapore’s Temasek Holdings) recently could spur other government agencies, like the Minister of Finance Inc (MOF) and Bank Negara, to follow suit.
“Further developments on this front would undoubtedly be positive, in that they would raise the country’s overall ratings on the MSCI (Morgan Stanley Capital International) indices, for which one of the criteria is the free float of the component stocks,” it said.
Khazanah owns substantial stakes in a number of corporations, including Perusahaan Otomobil Nasional Bhd, TNB and UEM World Bhd, while the MOF has large holdings in MAS, MALAYSIA AIRPORTS HOLDINGS BHD and BINTULU PORT HOLDINGS BHD.
Deutsche Bank said it favoured consumption, economic recovery and commodity themes. It has positive views on TNB as well as banking, palm oil and property stocks.
The EPF is also believed to be particularly bullish on the property market, for which it has allocated some RM11bil or 5% of its total investments.