Malaysia's `Perfect Storm' Drives Longest Stock Market Rally in 16 Years

Malaysian stocks rallied for a 10th day, capping the longest winning streak in almost 16 years, as exports rebounded and on optimism the government's review of race-based policies will lure foreign investors.

The benchmark FTSE Bursa Malaysia KLCI Index rose 0.4 percent to close at 1,341.75, the longest winning streak since August 1994. CIMB Group Holdings Bhd., Malaysia's second-biggest banking group, and Public Bank Bhd. led gains in the index, both closing at record highs.

The Kuala Lumpur benchmark index has risen 3.7 percent in the past 10 days, the second-best performer in Southeast Asia, as Malaysia's government said last week it will revise its four- decade-old affirmative action policies to focus on need rather than ethnicity under its economic reforms aimed at boosting average annual growth to 6.5 percent in 2011-2020.

"It's a perfect storm of good news," said Geoffrey Ng, who manages $1 billion of assets as chief executive officer at HLG Asset Management Sdn. in Kuala Lumpur. "It's positive expectations for real changes to happen, for real economic reforms to take place, and you've also got a fairly good economic growth forecast."

Malaysia emerged from a recession in the final quarter of 2009 amid an export rebound. Exports climbed for a third month in February as manufacturers shipped more electronics goods and palm oil to customers in Singapore, China and Europe, the trade ministry said on April 2 after the market close.

Banking Stocks

CIMB advanced 1.1 percent to 14.74 ringgit. The bank also climbed after it said the size of its initial share sale for its dual listing of its shares on the Thai stock exchange has been raised to as much as 50 million shares from 35 million. Public Bank rose 1.7 percent to 12 ringgit, and RHB Capital Bhd. advanced 1.6 percent to 5.77 ringgit, the highest level since Jan. 17, 2008.

Banking stocks will benefit the most from the economic recovery as consumers spend more and companies boost expansion, Ng said.

The ringgit rose 0.7 percent to 3.2270 against the U.S. dollar, highest since July 2008, driving gains to 6.1 percent this year, the best performer in Asia.

Palm oil exporters advanced. Kuala Lumpur Kepong Bhd., the nation's third-largest listed plantation group, rose 1.1 percent to 16.98 ringgit. Kulim Malaysia Bhd. increased 1.1 percent to 7.34 ringgit.

The economic recovery led Bank Negara Malaysia to raise interest rates for the first time in almost four years on March 4, beating most of the region's central banks in increasing borrowing costs. The bank said on March 24 that its monetary policy will continue to support growth even as it begins to "normalize" interest rates.

Comfortable With Growth

"You've got rising interest rates being a signal that the government is comfortable with the underlying growth in the economy, which lends a lot of credence to the ringgit's strength," Ng said.

Malaysia's central bank on March 24 raised the country's 2010 economic forecast, saying Southeast Asia's third-largest economy may expand 4.5 percent to 5.5 percent this year after shrinking 1.7 percent in 2009. The government said in October that gross domestic product would expand 2 percent to 3 percent in 2010.

To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net

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