Foreign funds move away from Malaysia
Foreign funds move away from Malaysia
KUALA LUMPUR (Reuters): Foreign portfolio investors are pulling out of Malaysia and analysts said on Monday the outflow would continue until companies respect the rights of minority shareholders and move further on corporate reform.
Latest data posted by the National Economic Action Council on its website (www.neac.gov.my) showed net outflow of 3.33 billion ringgit ($876 million) as of October 4 in the period from mid- February 1999, compared to 160.37 million ringgit as of August 16.
Analysts blamed the exodus of foreign funds on poor corporate governance which made foreign fund managers move to other high growth but more transparent markets in Asia.
"It's not surprising the way the (stock) index has been falling. Foreign funds have been selling in large blocks," said Chong Sui San, chief asset manager at Malaysia British Assurance.
During the seven weeks from mid-August to early October, the benchmark Kuala Lumpur Composite Index tumbled 12.7 percent to 707.90 points.
At the close on Monday the index stood at 731.09 points, down 28.4 percent from the year-high of 1,021.20 on February 18 and 10 percent lower than the end-1999 level of 812.33 points.
Andrew Seah, a senior analyst at Vickers Ballas, said foreign portfolio managers were tired of being at the losing end in many of the country's large corporate restructuring and debt reduction plans.
"Foreign funds number among the minority shareholders in many so-called blue chips," Seah said.
"They have little say in board decisions and so have little choice but to sell off if they are unhappy with revamps that arbitrarily change the fundamental nature or outlook of a company," he added.
Fund managers slammed the recent debt overhaul plans of conglomerate Renong Bhd [RNGS.KL] and United Engineers (M) Bhd.
UEM is planning to acquire 6.7 billion ringgit of assets from its associate Renong.
Analysts say the purchase of the non-cash generating assets will not add value to UEM and is only an exercise to help the ailing Renong clean up its balance sheet.
Foreign funds started returning to Malaysia in the first half of 2000 as the nation, led by strong exports of electronics and semi-conductors, rebounded from the Asian financial crisis of 1997-1998.
But despite sizzling exports and subdued inflation, portfolio investors do not seem impressed enough to keep their money in the domestic stock market.
"It's beyond economics. Those numbers look fine now but fund managers look ahead," said Chong.
The Malaysian government expects the economy to grow by 7.5 percent in 2000 and 7.0 percent in 2001.
Chong said poor market practices overshadowed economics and continued to worry investors.
"It is easy to say companies must pull up their socks but reality is different. Still, these big-boys (large corporates) must take heed and start changing," said Chong.
Nearly 8.7 billion ringgit of foreign funds flowed into the stock market in the first half of the year.
But the trend began to reverse from July and currently only 13 percent or 1.1 billion ringgit of 8.7 billion has stayed behind.
"It was easy to attract foreign investors then. The economy was outperforming on the low-base effect and there was the lure of a sharp rally on the reinstatement to the MSCI," said Lee Heng Guie, chief economist at HLG Research.
Malaysia was re-instated to the Morgan Stanley Capital International Index on May 31 after being dropped in 1998 for instituting capital controls.