Calpers lists KL as investable markets

Calpers lists KL as investable markets

Bloomberg, Kuala Lumpur

The California Public Employees' Retirement System, the biggest U.S. pension fund, reinstated Malaysia to the list of markets in which it may invest, a move that may encourage other overseas investment in the country and the region.

Calpers, as the fund is known, added Malaysia to the list after a two-year hiatus on the advice of Wilshire Associates Inc., spokesman Brad Pacheco said in a statement on Calpers' Web site. The fund cited improved political stability, financial transparency, labor standards and market liquidity.

The upgrade comes three months after the appointment of Prime Minister Abdullah Ahmad Badawi, who has shunned the large- scale building projects of his predecessor Mahathir Mohamad, and promised to reduce corruption. It may boost investors' interest in stocks such as Malayan Banking Bhd., Telekom Malaysia Bhd. and Tenaga Nasional Bhd., said investors, including Michael Marusiak.

"It's yet another sign that things are getting better in Malaysia," said Marusiak, who helps manage US$650 million in Asia, excluding Japan, for Singapore-based Principal Global Investors.

"It's a sign of better corporate governance and transparency, and less reliance on large projects to generate growth."

Marusiak expects large capitalized stocks such as Malayan Banking Bhd., Telekom Malaysia Bhd. and Tenaga Nasional Bhd. will be direct beneficiaries of the move by Calpers.

The broader market may gain as well. Malaysia's key Kuala Lumpur Composite Index, up a third in a year, has nevertheless lagged benchmarks in neighboring markets. Singapore's Straits Times Index is up 44 percent, while Thailand's SET Index has almost doubled in the past 12 months.

Calpers, with US$167 billion of investments, halted investment in Thailand, Indonesia and Malaysia in February 2002, citing a lack of transparency, political instability and poor labor standards.

The move comes at a time when Malaysia's credit ratings are rising, economic expansion in the $93 billion economy accelerates, and earnings at some of its biggest companies improve.

Investors have also praised a smooth transition of power for Prime Minister Abdullah Ahmad Badawi, who has embarked on a campaign to reduce corruption. Investors say the move reflects recent reforms by the country to attract investment.

"Malaysia was moved into the investable universe because it made improvements," Pacheco said in the Calpers statement.

Bond investors too have shown increasing confidence in the country, willing to accept less yield to buy Malaysian debt in the past year.

The government's 7.5 percent dollar-denominated bonds maturing in July 2011 were bid at a yield of about 83 basis points more than like-maturity U.S. Treasuries as of 9:39 a.m. in Hong Kong, according to Deutsche Bank AG prices. A basis point is 0.01 percentage point.

The yield premium narrowed from about 1.74 percentage points in March, Bloomberg data show.

Overall, the Calpers move "is good" for Malaysia, said Tan Jin Teik, who as the chief executive officer of Avenue Asset Management in Kuala Lumpur, helps manages the equivalent of $395 million in stocks and bonds.

Calpers has as much as $2.6 billion invested in the region. Pacheco declined to provide details of the value of its planned investment in Malaysia, saying in a telephone interview that there wasn't a "target allocation" for individual countries.

Yesterday, Calpers said it would wait to sell about $67 million of its holdings in the Philippines pending a review by Wilshire of the government's plans to improve corporate governance and overall stability in the country.

The fund also gave Argentina, Peru and Turkey a year to improve, while regional markets like Thailand, Sri Lanka, India and China continue to be excluded from its "permissible markets list".