Friday, July 31, 2009

Amanah Saham 1 Malaysia - A Boost To Equities?

More funds allocated to local equities, then it should boost equities right!?? Err, well, no actually. The Malaysian exchange is a relatively open exchange, funds can move in and out. If you want to "engineer" a higher market, then do like China, restrict the way foreign funds can move, restrict even more the way locals can invest, make it difficult to invest overseas.

You can establish more local funds, RM5bn here, RM10bn there, but all stocks will fall in line with a certain kind valuation parameters. Say, there is a 30% foreign funds participation now in the market, they are here because of certain growth assumptions relative to valuations offered. If you increase the amount via new local funds, yes it will create more buying, but institutional funds will also have the ability to take profit and seek out less expensive markets. So, say new funds add 5% demand for equities, that could be taking out foreign funds exiting the market by a similar quantum as the move up might look expensive.

The second assumption is that these RM10bn are new funds, these funds are from the public. Who is to say these funds would not have gone to buy equities as well on their own?

There is a danger which no one in mainstream media is saying. You are literally taking out these RM10bn from the economic system. Unless 100% of these funds are in fixed deposits, then the net effect is muted. If these funds come from disposable income, you can argue that the RM10bn is being sucked out of the system. If anyone studied the velocity of money, each RM1 circulating in the economy is actually worth about RM8 to the real economy. Too many of these funds is deflationary and slows domestic economic activity.

Why are ASM PNB funds seemingly being assumed to "guarantee" to return 6%-8% a year? That is not a true certainty. The track record is good though but its not a guarantee.

Think people, think. I do agree that the fund is ok, but we need to be aware of the wider implications and not be blinkered to think at a superficial level only. After all that, I still think this is a "good thing", but we do need to have an appreciation of how the whole thing works.


KUALA LUMPUR, July 31 — Prime Minister Datuk Seri Najib Razak announced the establishment of the Amanah Saham 1 Malaysia (AS 1 Malaysia) fund consisting of 10 billion units on July 11 on the occasion of his 100th day in office. To be managed by Permodalan Nasional Bhd (PNB), the fund is accessible to all Malaysians and follows on the heels of an earlier fund of 3.3 billion units which were speedily snapped up by investors looking for safer investment options.

Long queues formed early last Wednesday for the remaining 1.6 billion units in the state-sponsored Amanah Saham Malaysia (ASM) when the units were offered to all after the Malay and Indian portions were not fully subscribed.

The ASM fund had originally allocated half of the 3.3 billion units to Malays, 30 per cent to Chinese, 5 per cent to Indians, and the balance to “other” races. It is unclear if the 1 Malaysia fund would have a similar allocation. That the remaining 1.6 billion units went in a few hours suggests overwhelming demand for the funds which offer superior returns to fixed deposit rates of 6-8 per cent versus 2-3 per cent.

Although the 1 Malaysia fund is three times bigger than the last ASM, the liquidity in the system is huge and with the pent-up demand still robust, sales could be brisk. Malaysia's biggest fund manager is expected to invest the proceeds back into the local stock market.

“I noticed an immediate spike in volume last week after the remaining units were sold,” said a stockbroker who is confident of a new market surge since PNB would have to invest the proceeds.

Indeed, market players attribute the recent stockmarket rally to government funds and institutions, since most retailers are only starting to nibble. However, some chartists have warned the market has run ahead of valuations.

Over the past weeks, the benchmark index has risen steadily to around 1,160. It comes after a new 30-constituent index — the FTSE Bursa Malaysia KLCI — replaced the 100-company Kuala Lumpur Composite Index in the first week of July. So many contend the improvement is due to the concentration of trade in the heavyweights, especially the top four — Maybank, Sime Darby, Tenaga and Commerce Asset Holdings.

Despite Malaysia being a regional laggard, foreigners remain underweight on its economy. Many still are unaware of recent measures to liberalise the economy, analysts say. In June, foreign funds acquired US$26 million (RM91 million) worth of local shares, less than a fifth a month previously, according to a CIMB Investment Bank report. — Business Times Singapore

p/s photo: Carmen Soo


asdf8888 said...

sometimes I personally do not understand why the govt launches so many funds lately.

And if I am not wrong, most if not all of it posted profit every year. Does this resemble ponzi scheme?

I don't know and hope it will not happen.

KC said...

Those used to buy shares will not invest in 1 Malaysia fund,

Those keen to buy 1 malaysia Fund most likely are FD depositor.

Wise for the Govt to tap into sleeping money in banking system.

DanielXX said...

Just to let u know, I'm a big recent fan of Malaysian stocks. I'm maximum bullish. It is an underinvested and underhyped market that has just seen political conditions stabilise while fund managers still desert it for the last 1.5 years. I lurve it when such conditions present themselves!

AhBeng said...

I agree with you that foreign funds will take profit, but IMO the impact to stock market is likely to be positive as foreigners will still remain weighted in the malaysian mkt for benchmarking purposes, despite hefty valuation. Moreover, current foreign shareholding level is still very much below the peak in 2008. When everyone is looking at a recovery play, it takes lots of guts to significantly underweight Malaysia - a so called "emerging mkt".

see said...

Those buying 1Malaysia are gonna be FD depositors attracted by the safety of the fixed RM1 price. But the problem is the more funds into the market is gonna keep the market expensive relative to regional ones. As it is M'sia already being overshadowed by like of China & India & now Indonesia. Trapped investible funds in the form of EPF & PNB money keep the market expensive & unattractive.

blue lemon said...

Still blurr about all this but my target is of coz profit.

Eric Lim said...

I think the AS One-Malaysia Fund should set aside certain amount to promote Permaculture (both as entrepreneurial projects as well as lifestyle values), in line with the People (First), Performance (Now), Permaculture (Forever) fully complementing the Triple-Bottom-Line of People-Profit-Planet or CSR (Corporate Social Responsibility)

This investment approach could prove to be Malaysia's Legacy to the World, as concisely detailed in the following post: