Tuesday, June 23, 2009

Will Malaysian Stocks "Catch Up" to Peers?

An interesting piece in Bloomberg this morning about the potential for Malaysia to "catch up" to its peers in Southeast Asia. I had not realized how much of a laggard Malaysia has been until I put the major countries into a 6 month chart (I should of included Indonesia) ...

[click to enlarge]

... as you can see all these indexes have obviously weakened the past month but about 2 months ago India, Singapore, Malaysia, and Hong Kong were all clustered in a group that was up 15-25%. Taiwan was in its own world at +40% due to the news that mainland China would finally be open to making direct investments into the country.

But a month later Malaysia had barely moved while Taiwan and Singapore surged to a +40% move, and of course the Indian elections caused a rocketship there (+17% in 1 day). In the past month all of these indexes have come back to Earth a bit but Malaysia has been lagging this past quarter while emerging markets were the hot play.

But now Malaysia is considering further opening its markets to outside investors, set to be announced with details at the end of the month. Also they plan to make their index much smaller, sticking with larger cap type of stocks with larger floats. Perhaps this is already "in" the market or not... impossible to know. It could be a stimulus for their market but what I loved about the tone of this article is the assumption that by "catching up" all these other markets were destined to continue to be stable or go up in the coming weeks. I don't think that is guaranteed last I checked? The most widely traded emerging market ETFs iShares MSCI Emerging Markets (EEM) has weakened considerably and (lo and behold) has a gap to fill (around $29.50)...

So perhaps "catching up" (if the others begin to falter badly) is not exactly what Malaysia will want to do.

Via Bloomberg
  • Malaysian stocks, beaten by regional peers this year, will start “catching up” as the exchange introduces a new benchmark index and the government eases curbs on foreign investment, CIMB Investment Bank Bhd. said.
  • “Malaysia will not lag behind for long,” Terence Wong, an analyst at CIMB, said in the report. “For investors that have missed out on the big gains made by higher-beta regional markets such as Hong Kong and Singapore, Malaysia provides a second opportunity to get exposure to the regional rebound.” Beta is an indicator of volatility.
  • Funds in Singapore, Hong Kong and Europe are “mostly underweighted in Malaysia,” Wong said. “Malaysia’s status as a laggard market that will catch up with regional peers in this rally as investors ‘rediscover it’ has been reinforced,” Wong said.
  • The Kuala Lumpur Composite Index has risen 17 percent this year, trailing behind Southeast Asian benchmark indexes. Prime Minister Najib Razak, who took office on April 3, announced stimulus plans valued at 67 billion ringgit ($19 billion) to restore economic growth as the nation nears its first recession in a decade.
  • Malaysia’s stock exchange said on June 16 that Najib will make “significant announcements” related to his plans to ease restrictions on foreign investment at an annual investor conference on June 30 and July 1.
  • On July 6, Bursa Malaysia Bhd., the country’s stock exchange manager, will cut the number of companies in its Kuala Lumpur Composite Index to 30 from 102, in the measure’s biggest overhaul aimed at removing the smallest and most tightly held companies to attract investors. The FTSE Bursa Malaysia KLCI will comprise the largest companies by market value with at least a 15 percent free float, or the portion of shares publicly available for trading. (15% is actually still a tiny fraction versus what is typical in the US)
[Year to Date Returns by Country, Go Peru]
[Mar 17, 2008: Restaring Stakes in Malaysia and Singapore]

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