Tuesday, February 19, 2008
Malaysia, A Safe Haven?
Back in 2005 and 2006, when most emerging markets were shooting through the roof, the KLSE underperformed and was widely ridiculed by local and international investors. 2007 saw KLSE doing a bit of catching up. Since the sub prime mess and the debilitating credit implosion, KLSE has managed to weather the stormy waters a lot better than other Asian markets. Since the beginning of the year, KLCI has only shed around 6% while Shanghai and Hang Seng have lost nearly 20%, even the Kospi has lost about 13%. Safe haven?
Why have we held up better? Elections, that's b.s. ... Its the currency, and then its the commodities.
Currency. Even thoough most currencies appreciated against the USD, Malaysia is one of the very few which has a staggering foreign reserves per capita, alongside with Taiwan and Singapore. Bank Negara under Zeti, has been under appreciated by all and they rightly have taken a low profile. Its not easy trying to rid yourself of the "cowboy central bank" reputation thanks to the people fiddling with risks back in the 80s and 90s.
Growth has been steady and inflation while being very hard to control, is not too bad compared to other nations. International investors looking at our balance sheet do think that the ringgit's upside is as good as the yuan. As the yuan is not internationally convertible, the ringgit's not too bad an exposure. If only we have a bigger ringgit bond market, then you can see some real action. The ringgit should break 3.0 against the USD this year. I see 2.9 as very achievable.
Needless to say, palm oil and oil prices have been very strong - both posting strong net benefits to our economy.
Other reasons include the fact that our big companies does not have a strong international exposure (though they really should)... none of our banks have any exposure to US subprime materially. Plus our economy rely a lot on US MNCs manufacturing in our country and then re-exporting back to US and other markets. US slowdown would not be reflected as such in KLCI as they are not listed locally.
Having said all that, I would not be buying stocks yet. Overall global macro picture still not sound.