Published October 21, 2008

M'sia to pump RM5b more into share purchase fund

Move seen as bid to boost flagging market, but some say sum is too small

By PAULINE NG
IN KUALA LUMPUR

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IN A bid perceived as a boost for its flagging stockmarket, Malaysia has proposed channelling another RM5 billion (S$2.1 billion) to double the amount in a special fund set up in 2002 to buy undervalued stocks.

Market players are divided on whether the amount would suffice, but agreed it was timely and would provide a 'psychological boost' in the current global financial crisis.

'It's a good move, but the sum is too small,' said Malaysian Investors' Association president PHS Lim of the announcement by Deputy Prime Minister and Finance Minister Najib Razak yesterday.

The local bourse has lost 37 per cent - some RM300 billion according to Mr Lim's calculations - since the beginning of the year. Towards the end of 2007, the value of Bursa Malaysia's companies was estimated at RM1.2 trillion. Yesterday it flirted with the 900-psychological point but managed to close above.

'A couple of billions is only good for a week's operations,' Mr Lim quipped, pointing to the Korean government's promise to inject up to US$100 billion to help its capital markets.

In Malaysia's case, its exposure to toxic loans originating from the US sub-prime crisis is negligible, while more than 90 per cent of banking assets are denominated in the local currency.

Established in 2002, three to four years after the Asian financial crisis brought the local stockmarket to its knees, ValueCap is owned by state investment agency Khazanah Nasional, and two other state- linked trust and pension agencies, Permodalan Nasional and Kumpulan Wang Amanah Pencen.

The fund has not been consistent in reporting on its profits or activities, although after its first year, second finance minister Nor Mohamed Yakcop revealed ValueCap had yielded a profit of RM250 million for its first fiscal year ended 2003 - a bullish year for the market.

Of the initial RM10 billion allocated then, ValueCap had only used RM4 billion and invested in 70-odd companies.

'From time to time you can see their name in the 30 top shareholder list,' said Philip Capital chief investment officer Ang Kok Heng. 'While they have played their role well, the market would like to see more transparency.'

Mr Ang also believes a better idea would be to turn ValueCap into a large exchange traded fund (ETF) - one that is based on the benchmark KL Composite Index. Unlike the current ones which are too small, ValueCap would be big and liquid enough to provide diversification plus country exposure to those unsure of specific stocks to buy.

A mainly foreign driven exchange, the withdrawal of foreign funds has been painful for the local bourse, which ought to be better performing given the country's relatively robust economic fundamentals.

But the politicking has further dampened sentiments and Mr Ang whose fund manages about RM480 million - half currently in cash - said he is adopting a strategy of 'staggered buying'. 'Our investors are also asking us to go slow. Everyone is scared.'