Malaysia has been one of the best performing Far Eastern markets recently. However, it continues to ...
Malaysia has been one of the best performing Far Eastern markets recently. However, it continues to attract negative sentiment due to its lack of corporate restructuring.
According to Mike Kerley, fund manager on Invesco's Far East desk, Malaysia is up 1% in US dollar terms. For the year to 7 July, while Indonesia is down 45%, Thailand has fallen by 43% and the Philippines has fallen by 40%. India is down 18% in the year to 7 July.
Kerley says Malaysia's development since the Asia crisis has not been as good as it should be.
Despite being one of the best performing markets over the past year, Malaysia has seen portfolio flows turn outward and foreign direct investment fall on a month by month basis.
Kerley's view is echoed by Steven Barton, an investment manager on Abbey National's Far East desk, who says little has changed since Mahatir Mohamed was re-elected as prime minister.
Barton says: "We have not seen as much change as we would have liked."
Barton says that some investors moved their money into the Malaysian market in the expectation of more capital inflows on the back of its MSCI re-rating.
Malaysia has a 9.2% weighting in the MSCI Asia Pacific but its market has hardly produced strong positive returns since its re-instatement into the index earlier this year.
Barton says: "My weighting in Malaysia is 2% which is low when the benchmark indicates a 8-9% holding."
The economic management of the country is still largely the same as it was three years ago with Malaysia's corporations still blighted by behind-the-scenes deals and a blurring between the operations of government and business, according to Barton.
He adds: "The general rule is that listed companies are in the camp of one politician or another, making it the exception to the rule when there is no ministerial interference."
Kerley says he would like to see a culture fostered where Malaysian companies stand on their own two feet and live or die by market means.
"The whole corporate governance issue is what's driving prices down," he says, adding he is not so worried about capital controls in the country but by the level of government intervention.
Kerley feels the plans to reduce the number of banks to six or eight by enforcing consolidation has been one positive decision taken by the Malaysian government.
He says the fact countries like Indonesia, the Philippines and Thailand have become marginalised means Malaysia has done exceptionally well to carve out an export driven economy with its population of just 20 million.
He feels Malaysia's export industry is doing very well with companies like MPI (Malaysia Pacific Industries) and Unisem benefiting from continued strength of exporters.
But Malaysia is likely to suffer from a general lack of interest from investors until something happens to shake up the markets. The fact that Malaysia has been one of the best performing markets in the region means it is also relatively expensive, Kerley says.
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