Foreign funds pull $474m out of Malaysia in October

Foreign funds pull $474m out of Malaysia in October

KUALA LUMPUR (Reuters): Foreign funds withdrew nearly half a
billion dollars from Malaysia in October, registering rising
disenchantment with the slow pace of corporate restructuring.

Latest data posted by the National Economic Action Council
(NEAC) on its website (www.neac.gov.my) showed that net foreign
portfolio outflow totaled 1.8 billion ringgit ($474 million)
between October 4 and November 1.

Foreign funds have withdrawn $1.3 billion from Malaysia since
NEAC started keeping score in February, 1999.

A good part of the exodus in October was attributed to funds
anticipating Morgan Stanley Capital International (MSCI) would
re-jig its global investment index to Malaysia's disadvantage.

The re-jig, when it came earlier this month, resulted in
Malaysia's weighting dropping to between 4.5 and 6.0 percent from
10 percent in an index used by fund managers as a guide for
allocating funds in different markets.

"Basically it is due to MSCI and it has also to do with
corporate governance," said Chong Sui San, chief investment
officer at Malaysia British Assurance Bhd.

"Foreign funds are not very comfortable with Malaysia," she
said, adding sentiment was likely to remain bearish.

The bellwether Kuala Lumpur Stock Exchange Composite Index has
had a bumpy ride this year.

At the close on Tuesday the share index stood at 710.86
points, down 30.4 percent from the year-high of 1,021.20 on
February 18 and 12.5 percent lower than the end-1999 level of
812.33 points.

Fund managers said portfolio funds are unlikely to rush back
into Malaysia unless the government ushers in more transparency
in corporate restructuring.

"Most of the promises made by the large corporates are not
kept," said a local fund manager.

She cited a recent deal between the country's largest
industrial conglomerate, Renong Bhd, and its associate, United
Engineers, to restructure assets and debt, as the kind of example
of corporate governance that put investors off.

"Prices of many bluechips are very cheap and look attractive
but unless there is transparency and improved corporate
governance, funds will not be in a hurry to return," the fund
manager said.