Global funds lose patience with Malaysia, fail to see reform

Global funds have bypassed Malaysia in favour of other countries after they failed to see the reform brought by Pakatan Harapan, Bloomberg reports.

Stocks in Malaysia recorded outflows in all but two of the past 12 months, while the ringgit trailed most of its peers, the financial daily said in its report.

On May 7, Bank Negara Malaysia cut the interest rate for the first time since July 2016, in light of downside risk to global growth and signs of tightening of financial conditions on the home front.

Those who hoped for reform to take place in Malaysia after a change of government in May 2018 lost patience and became cautious.

Only a few portfolio managers expect a recovery anytime soon, said the report.

“I don’t think I need to rush into Malaysia at the moment. Even with the valuation attraction, which is now definitely coming up clearly, I don’t think the outlook is clear enough,” said London-based portfolio manager Tim Love.

The Malaysian ringgit risked being removed from FTSE Russel's World Government Bond Index, while Morgan Stanley warned that almost US$8 billion (RM33.37 billion) might exit the local debt market.

“We’ve been on neutral Malaysian government bonds for a while now. The decision by the central bank a couple of years ago to shut down the NDF (non-deliverable forward) market has essentially made it impossible to hedge bond exposure. I doubt offshore investors will now return en masse," said another London-based portfolio manager Delphine Arrighi.

However, some see weakness in Malaysian securities as a buying opportunity.

Any impact is likely to be offset by the presence of a large pool of domestic investors, and easier monetary policy, SPI Asset Management was quoted as saying.

“Ultimately, the currency markets will need to price in the bond outflow, which could trigger some short term sell-off in equities.

"But for the equity and bond markets, the rate cut will support both and come September, we will be asking ourselves why didn’t we buy more when there was blood on the street," said SPI Asset's head of trading and market strategy Stephen Innes. - Mkini