Malaysian Stocks Set for Record Close as Growth, Currency Attract Inflows

Malaysian stocks rose, driving the benchmark index to a record close, as government plans to boost the economy and an appreciating currency bolstered foreign investment in the market to a two-year high.

The benchmark FTSE Bursa Malaysia KLCI Index climbed 0.5 percent to 1,519.84 at the 5 p.m. close in Kuala Lumpur. The measure remains below the intraday record of 1,524.69 on Jan. 14, 2008.

The Kuala Lumpur index has surged 19 percent this year, surpassing levels before the start of the global financial crisis in 2008 and joining Sri Lanka, Indonesia, the Philippines and India among Asian emerging markets with benchmark stock gauges at or near a record. Malaysia, Southeast Asia’s third- largest economy, grew 10.1 percent in the first quarter and 8.9 percent in the second quarter as manufacturing recovered following last year’s recession.

“It’s hard to ignore Malaysia; its growth of above 7 percent this year is probably top quartile globally,” said Geoffrey Ng, who manages $1 billion as chief executive officer at HLG Asset Management Sdn. in Kuala Lumpur. “The numbers speak for themselves; the economic fundamentals of the country look good.”

Malaysia’s gross domestic product will grow as much as 6 percent next year after expanding 7 percent in 2010, according to an Oct. 15 Ministry of Finance report.

IOI Corp., Malaysia’s second-biggest palm oil producer, led gains in Malaysia’s stock index today, buoyed by a rally in palm oil. IOI climbed 1.9 percent to 5.97 ringgit, the highest close since July 16, 2008. Kuala Lumpur Kepong Bhd. added 4.1 percent to close at a record high of 20.62 ringgit. Sime Darby Bhd. gained 1.1 percent to 9.03 ringgit.

‘Super-Goldilocks’

The MSCI Emerging Markets Index may rise to 1,500 by end-2011, supported by the Federal Reserve’s decision to pump $600 billion more into the financial system through so-called quantitative easing and a “super-Goldilocks” economic environment, Citigroup Inc.’s New York-based equity strategists Geoffrey Dennis and Jason Press said last week. The target is 30 percent above the measure’s 1,155.94 close on Nov. 5.

The MSCI gauge has surged 17 percent this year, twice the 8.1 percent gain in the MSCI World Index of shares in developed markets. Investors poured money into developing nations at a record pace in search of higher yields amid near-zero benchmark interest rates in the U.S.

Inflows into emerging-market stock funds have surpassed $60 billion and exceeded $46 billion in bonds, with both poised for their best year since Cambridge, Massachusetts-based EPFR Global started tracking them in 1995.

Six Weeks

The FTSE Bursa Malaysia KLCI Index has climbed for six straight weeks, the longest winning streak since April 2009. Foreign funds bought $129 million of Malaysian shares in September, after outflows of $112.4 million in August, CIMB Investment Bank Bhd. analyst Terence Wong said on Oct. 27, citing EPFR, which collects data from more than 600 funds.

Overseas investment has helped boost the Malaysian ringgit by 11 percent against the dollar this year, the second-best performance in Asia excluding Japan.

Malaysia is “unreasonably overlooked,” Sean Darby, an analyst at Nomura Holdings Inc., wrote in a report today. “Malaysian equities are entering a sweet spot as terms of trade turn positive on firming commodity prices and excess liquidity moves into financial assets.”

Darby, who turned “bullish” on Malaysian equities on Jan. 4 and recommended a switch from Indonesia to Malaysia on May 25, said he was retaining his recommendation. His top picks include Malayan Banking Bhd., Alliance Financial Group Bhd., Genting Malaysia Bhd., Sime Darby, SP Setia Bhd. and UEM Land Holdings Bhd.

Najib’s Plan

Malaysian Prime Minister Najib Razak said in an Oct. 15 budget speech that the government plans a 100-floor tower and a mass rail project to boost spending and spur growth. These are part of the $444 billion of private-led projects that the government has identified to spur investment and transform the country into a high-income nation.

Malaysian stocks rose after Najib’s ruling coalition won two by-elections on Nov. 4 as promises of reforms helped to gain voters’ support. The victories fanned speculation that a general election will be called by the first half of 2011, Vincent Khoo, an analyst at UOB Kay Hian Group, said in a note today. The election must be held by 2013.

This is “sending the market higher,” he said.

Najib has sought to regain support among ethnic Chinese and Indian voters after his National Front coalition was denied a two-thirds majority in the March 2008 general election.

Surging Inflows

Malaysia’s stock market has also benefited from surging inflows of global funds into emerging markets, which have bolstered the stock indexes in neighboring Southeast Asian nations. The benchmark index in the Philippines has jumped 41 percent this year and Thailand’s has surged 43 percent, while Indonesia has climbed 46 percent. India’s Bombay Stock Exchange Sensitive Index has advanced 20 percent and hit an all-time high on Nov. 4.

“All these countries are beneficiaries of the liquidity that’s moving into these markets,” HLG Asset Management’s Ng said. “Risky assets are moving into growth areas in the world, and it’s all Asian emerging markets.”

September’s fund inflows increased net purchases to $186 million so far this year, exceeding last year’s total of $158 million, said CIMB’s Wong, who was ranked the third-best analyst in Malaysia by Institutional Investor magazine in 2010. He kept his “overweight” rating on the market and his end-2011 index target of 1,610 points.

Foreign Holdings

Foreigners in September increased their share of total Malaysian equity holdings by 0.5 percentage points to 21.7 percent, the highest level since September 2008, Wong said, citing stock exchange data.

CIMB Investment Bank raised its Malaysian stock index target by 5.9 percent on Sept. 22, citing government efforts to boost investment and economic growth. The benchmark stock index may rise to a record 1,610 by the end of 2011, Wong said in a report then, increasing the previous estimate of 1,520. The end-2010 target was increased to 1,500 from 1,450.

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

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net.

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