Malaysia’s biggest pension fund sold about 331 million ringgit ($110 million) of shares in the country’s benchmark index as Prime Minister Najib Razak’s election victory sparked the largest rally since 2008.
Employees Provident Fund, which oversees $176 billion for more than 13 million Malaysians, reduced stakes in 20 of the 30 stocks in the FTSE Bursa Malaysia KLCI Index as the gauge jumped 3.4 percent on May 6, regulatory filings compiled by Bloomberg show. The fund’s net sales of UEM Land Holdings Bhd. were the biggest on record for a single day, while the reduction in Public Bank Bhd. was the largest in three months.
EPF sold even as Najib’s win in the May 5 election eased concern the first change in leadership since 1957 would disrupt his plans to narrow the budget deficit and boost infrastructure spending. The fund may have taken advantage of foreign purchases to lock in higher prices on its holdings as the KLCI index rose as much as 7.8 percent to a record, said ABN Amro Private Bank’s Daphne Roth. Trading volumes on May 6 were 87 percent higher than the 12-month average, data compiled by Bloomberg show.
“The local funds went in before the election so they are just lowering their holdings and they just want to take profit,” Roth, the Singapore-based head of Asia equity research at ABN Amro Private Bank, which oversees about $207 billion, said by phone yesterday. “They are hoping to come back in when the prices are down.”
The volume of KLCI stocks rose during the post-election rally and EPF’s participation increased accordingly, Nik Affendi Jaafar, the fund’s general manager for public relations, said by phone yesterday.
Foreign investors bought a net 5.3 billion ringgit of Malaysian shares during April after purchasing a net 4.8 billion ringgit in March, according to exchange data. The bourse hasn’t released figures for May.
The KLCI index ended with a 3.4 percent gain on May 6 and has risen another 1.8 percent in the seven trading days since then. It fell 0.3 percent to 1,783.03 at the close today and is valued at 2.42 times net assets, within 1 percent of its record high reached in January 2011, data compiled by Bloomberg show.
While the KLCI measure’s 5.6 percent gain this year has topped the 21-country MSCI Emerging Markets Index’s 0.9 percent drop, Malaysian shares have lagged behind other markets in Southeast Asia. The Philippine Stock Exchange Index has surged 27 percent, the Jakarta Composite Index increased 18 percent and Thailand’s SET Index advanced 17 percent.
There’s still room for Malaysian shares to gain, according to Goldman Sachs Group Inc. The KLCI index may return another 14 percent in 12 months, Goldman strategists led by Hong Kong-based Timothy Moe wrote in a May 13 report. They still have an underweight rating on Malaysia versus other Southeast Asian markets, favoring Thailand and Singapore.
Najib has embarked on a $444 billion development program to build railways, power plants and roads to help the country achieve developed-nation status by 2020. His Barisan Nasional coalition, or National Front, won 133 of the 222 parliamentary seats, according to the Election Commission, while the opposition People’s Alliance led by Anwar Ibrahim had 89. It was the narrowest margin of victory for the ruling coalition since Malaysia won its independence from the British in 1957.
“Election uncertainty has been reduced so there has been a lot of foreign buying,” ABN Amro’s Roth said.
EPF, which is part of Malaysia’s Ministry of Finance, is funded by mandatory contributions from private and non-pensionable public sector employees, according to its website.
Chief Executive Officer Shahril Ridza Ridzuan has led the fund since April after replacing Azlan Zainol, who served in the role for 12 years. Equities comprised about 39 percent of total assets for the year, according to its website. It declared a record dividend of 27.5 billion ringgit to members for 2012.
“They need to realize profits to pay dividends,” Raymond Tang, who helps oversee about $10 billion as chief investment officer at CIMB-Principal Asset Management Bhd., said by phone in Kuala Lumpur.
EPF was ranked sixth among the world’s largest state pension funds by asset size in a survey by Towers Watson & Co. released in August. About 15.7 percent of its assets at the end of 2012 were in overseas investments, EPF said in a Feb. 17 statement.
The fund is an active buyer and seller of KLCI index companies, data compiled by Bloomberg show. It changed holdings in Public Bank, Malaysia’s fourth-biggest company by market value, on 26 trading days so far this quarter. Its position in lender CIMB Group Holdings Bhd. changed on 27 days. EPF, which owns an 11 percent stake in CIMB, was a net buyer of the stock on May 6.
Investors who own 5 percent or more of public companies in Malaysia are required to report changes in their holdings within seven days, according to the Securities Commission’s website.
EPF sold a net 2.63 million shares of Public Bank on May 6, when the stock rallied as much as 3.4 percent. It reduced holdings by about 4.5 million shares during the following two days, data compiled by Bloomberg show.
The fund still owns about 472 million shares, or 13.5 percent of the outstanding stock. Public Bank rose 0.5 percent to 16.80 ringgit yesterday, a record closing high.
Public Bank Chief Financial Officer Yik Sook Ling didn’t answer a call or immediately respond to an e-mail seeking comment.
The fund’s stake in UEM Land declined by 7.9 million shares, the most since Bloomberg began tracking EPF transactions in the company in 2009, as the stock jumped as much as 17 percent on May 6. EPF still holds about 215 million shares, a 5 percent stake. The Kuala Lumpur-based developer’s stock was unchanged yesterday at 3.19 ringgit. It trades for 2.7 times net assets, within 3 percent of the highest level since June 2011.
UEM’s investor relations group didn’t answer a call or immediately respond to an e-mail.
Bumi Armada Bhd., an offshore oilfield services provider, climbed as much as 7.2 percent on May 6. EPF cut its stake by 2.8 million shares, the most since May 2012, according to data compiled by Bloomberg. The fund still owns 190.8 million shares, or 6.5 percent of the outstanding stock, the data show.
A call to Bumi Armada Chief Financial Officer Shaharul Rezza Bin Hassan’s office wasn’t answered and the company’s investor relations group didn’t immediately reply to a request for comment submitted to its website.
“Now that the foreigners are willing to take the market higher, some of the local funds are cashing in,” Pankaj Kumar, the director of investment at KSK Group Bhd., said by phone from Kuala Lumpur. “Why not?”