Strong demand for M’sian equities

Written by Surin Murugiah
Monday, 28 September 2009 12:04

KUALA LUMPUR: The positive response to the recent share placements, including the one by Khazanah Nasional Bhd in Malaysia Airports Holdings Bhd (MAHB) shares, shows a strong demand for Malaysian equities that is constrained by liquidity issues, said CIMB Research.

The research house said Khazanah’s placement of 55 million shares in MAHB for RM181.5 million could be an indication that the move to systematically pare down its stakes in various major government-linked companies (GLCs) and free up liquidity was finally accelerating.

“This is one of the promises made by Prime Minister Datuk Seri Najib Razak at the recent InvestMalaysia 2009 conference. The placement appears to be well received as the share price spiked up to RM3.60 shortly after the placement was done at RM3.30,” it said in a report last Friday.

CIMB Research said the response to a separate placement by a foundation of 30.3 million shares in CIMB Group Holdings Bhd on the same day was equally good, adding that demand outstripped supply.

CIMB’s share price climbed past the RM11 mark compared to the placement price of RM10.38, it said.

“The strong response to the two placements could mean institutional funds are indeed flush with funds and there is strong demand for Malaysian equities from local and foreign institutions but they are unwilling to buy large blocks on the open market as the lack of liquidity could push up prices too fast and too high.

“By taking placements at a slight discount to market price, these funds can then average up their costs by buying the rest of their needs in the market,” CIMB Research said.

It said share placements by government-linked investment companies (GLICs) such as Khazanah was a win-win proposition for the country as they improved free float and liquidity while giving investors the opportunity to ride on the upside to the market.

Maintaining its overweight stance on Malaysia, the research house said the placements could help renew foreign investor interest and drive a re-rating of the market.

“We remain bullish about Malaysia and maintain our end-2010 KLCI target of 1,400, based on an unchanged mid-cycle price-earnings ratio (PER) of 15 times.

“Malaysia’s dividend yield of close to 5% is an added attraction, being the highest in the region,” it added.

The turnover and free float in Malaysia were among the lowest in the region, which would help explain why even Indonesia and Thailand’s recent trading volumes topped Malaysia’s despite their smaller market capitalisation.

It said foreign investors appeared to have largely bypassed Malaysia in this rally as statistics from Emerging Portfolio Fund Research (EPFR) showed that foreign investors turned significant net sellers in July.

“This was a negative surprise to us as foreign investors have been aggressive buyers in the rest of the region during this market upswing”, it said.

“We believe investors will continue to look favourably upon placements by GLICs such as Khazanah as the move signals skillful execution of the government’s drive to boost market liquidity.

“Also, it will not be perceived as cashing out by GLICs at the peak as the KLCI is hovering around 1,200 points and is far from its 2008 peak of above 1,500 points,” it said.

Furthermore, many local and foreign institutional funds still have significant cash positions and would want to increase exposure without driving up share prices too much.

The research house said should Khazanah or other GLICs scale back their stakes in major blue chips, it could be positive for the share prices of the affected GLCs and the overall market liquidity and turnover.

“Companies in which Khazanah has more than 50% shareholding include MAS, PLUS Expressways, UEM Land and Pharmaniaga.

“It also has substantial holdings in companies such as Proton, Axiata, Telekom and Time Engineering where there is minimal risk of losing control,” it said.


This article appeared in The Edge Financial Daily, September 28, 2009.