Malaysia’s Top Fund Buys More Consumer, Plantation Stocks

Malaysia’s best-performing fund in the past year is buying consumer and plantation stocks that are benefiting from government efforts to bolster domestic growth and a rally in palm oil prices.

Kenanga Growth Fund (KUTNETF), with assets of 59 million ringgit ($19 million) as of March 31, favors companies including Dutch Lady Milk Industries Bhd. (DLM) and Nestle (Malaysia) Bhd., Chen Fan Fai, investment director at Kenanga Investors Bhd., said in an interview in Kuala Lumpur on April 23. The fund beat 370 other Malaysian equity mutual funds in the past year with an 18 percent return, according to data compiled by Bloomberg. Dutch Lady has doubled in the past year, outpacing the FTSE Bursa Malaysia KLCI Index’s (FBMKLCI) 3.6 percent gain.

Gauges of consumer and plantation stocks are the best performers of 10 industry groups on the Malaysian bourse in the past year on optimism Prime Minister Najib Razak’s 2012 budget plan to distribute cash to low-income families, raise wages for civil servants and boost spending on transportation will bolster growth and consumption. Palm-oil futures have surged 9.3 percent this year and hit a 13-month high on April 10.

“Consumer stocks have done well because they are more resilient in any downturn and the government’s drive to boost income levels will also be positive for consumption,” Chen said. “We have always liked plantation stocks because demand for crude palm oil is ever on the rise.”

Election Concerns

The Bursa Malaysia Consumer Index (KLCSU) rose less than 0.1 percent to close near a record at 514.12 at 5 p.m. in Kuala Lumpur. Shares of Dutch Lady added 0.1 percent to 35 ringgit. The Bursa Malaysia Plantation Index dropped 0.2 percent.

The Kenanga Growth Fund beat 97 percent of its peers in the past three years and 98 percent of them over five years, according to data compiled by Bloomberg. It was named Malaysia’s best equity fund in 2011 by Morningstar Inc. Chen said he’s willing to buy stocks even before an election that Najib may call as early as June, according to four government officials who spoke on condition of anonymity last month.

Concern a poor election result for Najib would disrupt the government’s spending plans has limited the KLCI index’s gain to 3.2 percent this year, the second-worst performance among Asia- Pacific benchmark indexes after Sri Lanka, according to data compiled by Bloomberg. The MSCI Emerging-Markets Index (MXEF) has risen 11 percent in 2012.

Higher Valuations

Investors will probably be wary of the stock market before the polls, Tan Ting Min, an analyst at the Malaysian unit of Credit Suisse Group AG, wrote in a report dated March 7.

“Investors don’t like uncertainties,” said Kenanga’s Chen. “Uncertainties can be positive or negative. The outcome is not certain so nobody knows which way it’s going to go. We take a view that there is not going to be a change in the government.”

Gains by Malaysian consumer stocks pushed valuations relative to the Bloomberg World Consumer Non Cyclical Index (BWCNCY) to a four-month high on April 13. The Bursa Malaysia Consumer Index of 136 stocks, which includes carmakers Tan Chong Motor Holdings Bhd. and Proton Holdings Bhd., has rallied 11 percent in the past 12 months, outpacing a 3.6 percent gain in the KLCI index. The Selangor state-based Nestle Malaysia (NESZ), the local unit of the world’s biggest food company, has advanced 16 percent. The shares fell 0.1 percent today to close at 55.86 ringgit.

“We focus more on consumption,” Chen said. “Sector-wise, that’s probably our biggest bet.”

Plantation Rally

Southeast Asia’s third-biggest economy may expand 4.2 percent in 2012 on domestic demand, thanks to increased private investment and state spending, the Malaysian Institute of Economic Research, a partly government-funded institute, said in a statement on April 17. The body earlier estimated 3.7 percent growth. This is in line with the central bank’s revised forecast of 4 percent to 5 percent on March 22.

Najib unveiled economic and government transformation plans in 2010 and identified $444 billion of private sector-led projects this decade to bolster growth and achieve high-income status by 2020.

The Bursa Malaysia Plantation Index (KLPLN) of 43 members including IOI Corp. and Kuala Lumpur Kepong Bhd. (KLK) has surged 15 percent in the past year. The plantation measure trades at 13.8 times estimated profit, compared with a record-low 6.25 times in October 2008, weekly data compiled by Bloomberg shows.

Palm oil will advance to 3,800 ringgit a metric ton in Kuala Lumpur by Dec. 31, the highest level since February 2011, according to the median of 11 analyst and trader estimates compiled by Bloomberg. Palm oil futures rose as much as 0.4 percent to 3,478 ringgit a metric ton today.

“Palm oil prices have been firmer than expected,” Chen said. “The offshoot of this will be higher income for families in the rural area who are involved in agriculture. This will also give a boost to consumption.”

To contact the reporter on this story: Gan Yen Kuan in Kuala Lumpur at ykgan@bloomberg.net

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

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