In spite of growth in the FTSE Bursa Malaysia (FBM) Index Series, global investors still consider Malaysia an unattractive investment destination, largely because of the small weightings it has across global and Asia Pacific indices.
At an FTSE Bursa Malaysia seminar entitled Malaysian Market Insights and Investment Opportunities yesterday, numbers released from FTSE Asia Research showed the FBM Index Series has only a 0.51% weighting in the FTSE Global All Cap Index as at July 6, 2010.
Within Asia Pacific, the local bourse has a weighting of 2.31% while excluding Japan, its weighting is 3.71%. In short, Malaysia’s equity markets can be considered insignificant in the eyes of foreign investors.
“Our weighting in Apac ex Japan index is 3.71%. But a lot of it is not down to Malaysia. You see, right up to before the ‘97 crisis, markets like China, India, South Korea and Taiwan were not exactly investable markets. Now that they are investable, Malaysia would inevitably play a smaller role.
“There was a time in the early 1990s that fund managers had to have some of Malaysia (investments) if they had an Asia ex Japan fund. Now with our weighting so low, the cruel truth is that (global) fund managers don’t need Malaysia in their basket,” said Gerald Ambrose, managing director of Aberdeen Asset Management Sdn Bhd during the panel discussion.
Head of quantitative analysis at CLSA Asia-Pacific Markets Chris Lobello concurred with Ambrose. “Malaysia is about 0.51% of the global indices. If we were to talk about our personal accounts, something that is half a percent is not something we will spend a great deal of time on. Much of the reasons for smaller weightings are factors that we can’t control. China is the largest market and that’s not going to change any time soon in terms of performance,” said Lobello.
CLSA’s Lobello (top) and Ambrose of Aberdeen Asset Management say that global fund managers don’t need Malaysia in their basket as its weighting is so low. Photos by Chu Juck Seng
As for what could be done, Ambrose believed that Malaysia is already doing the right things. Unfortunately, the rest of the world is also doing the same right things.
“I don’t think you could drop a bomb on China and India. I believe it was a French author who said that life would be truly unbearable if it weren’t for the greater misfortunes of others.
“It’s quite true that we are doing the right things. But the Malaysian economy in the current view of the world investors is not the sexiest compared to, say, Indonesia. Indonesia has more than 200 million population which doesn’t depend on exports,
“Singapore seems to be considered the regional private banking centre, Hong Kong is the gateway to China, and Thailand seems to be the Detroit carmaker of Asia. We’ve lost a moniker to some extent. But if Malaysia continues to do things right, the money will come,” said Ambrose.
Malaysia’s indices have shown growth especially with the FBM Emas Index that covers 91.94% of the Main Market universe with 353 constituents. As at July 6, 2010, the five-year performance of FBM Emas Index has outperformed the regional benchmark of FTSE Asia Pacific All Cap ex Japan by 26.77%. The FBM Emas also ranks in the top five performers on a one-, three- and five-year basis against the rest of the Asia Pacific Markets.
Zooming in on the FBM Index Series, the FBM Mid 70 Index had the best one-year performance with 25.63% increase in price performance while the FBM ACE Index was the only index to show a negative performance at –4.07%.
The FBM KLCI rose 22.6% year-on-year (y-o-y) between July 6, 2009 and July 6, 2010 compared to FTSE Asia Pacific All Cap ex Japan’s 10.2% gain. The banking sector that accounts for a over a third of FBM KLCI had the strongest sector performance y-o-y, up 39.24%, followed closely by the mobile telecommunications sector up 35.35%.
Jamie Perrett, head of quantitative research Asia Pacific at FTSE, said that part of the appeal for Malaysian indices was its low volatility and low correlation to the major indices.
“The volatility is low and the correlation is low. So it can be an attractive story for global investors in their portfolio. If you look at investors especially pension funds who want to diversify their portfolio, they want to gain exposure in other segments but they don’t want it to be correlated to the rest of the world. Malaysia can be a component in their basket. It already is, but it certainly can be a bigger component,” said Perrett.
Over a 10-year period, the volatility for FBM Emas Index is at 15.11%, which is lower compared to FTSE Asia Pacific All Cap ex Japan Index at 19.63% and FTSE Japan All Cap Index at 23.18%.
South Korea showed the highest volatility in Asia Pacific over the 10-year period with 34.49%.
As for correlation, the FBM Emas Index is only 0.0384 correlated to the FTSE USA All Cap Index and 0.2786 correlated to the FTSE Global All Cap Index over a five-year period.
This article appeared in The Edge Financial Daily, July 27, 2010.
No comments:
Post a Comment