Malaysia Pension Fund Says Trading Challenging Amid Outflows

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Malaysia’s biggest pension fund manager said returns will be hard to find as foreign outflows weigh on the nation’s stocks and currency.

The fund is “facing a tough operating environment this year,” said Nurhisham Hussein, economics and capital markets department head at Employees Provident Fund, which manages 664 billion ringgit ($162 billion) in assets. While the downturn “affords a few opportunities,” equities continue to “trade at a premium to other regional markets,” he said.

Malaysian stocks are headed for the steepest weekly loss in almost seven years as Prime Minister Najib Razak struggles to contain a political scandal and doubts grow over the outlook for the economy. Foreign funds have pulled $3 billion from the nation’s shares this year, while the ringgit sank as much as 2.8 percent on Friday, its worst loss since 1998.

The benchmark FTSE Bursa Malaysia KLCI Index trades at 14.2 times projected 12-month earnings, or about 9 percent higher than the MSCI Southeast Asia Index. The measure dropped 1.5 percent at the close, extending its loss from its April 21 high to 14 percent.

Hussein says stocks will recover over the long term, while regulators will help limit turbulence.

“The EPF can afford to be patient and look beyond market cycles,” Hussein said. “So far, market participants have largely reacted calmly to changes in the environment, thanks in part to the supportive role played by the regulators, and we are confident that the market will eventually turn around.”

Fund Donations

The prime minister is fighting off a scandal linked to 1Malaysia Development Bhd., a debt-ridden state investment company, while plunging commodity prices and the prospect of higher U.S. interest rates hammer shares across Southeast Asia. Malaysia’s economy expanded the least in almost two years in the second quarter, data yesterday showed.

A probe into about 2.6 billion ringgit that was deposited into Najib’s accounts found that the funds were legal donations from the Middle East. The premier has denied taking money for personal gain and has described the furor as part of a campaign to remove him from office.

Volatility on the stock index is increasing as outflows accelerate, with a gauge of 30-day price swings rising to its highest level in six months. The ringgit is Asia’s worst-performing currency this year as it dropped about 14 percent against the greenback. The currency closed 1.7 percent lower on Friday.

Net foreign sales in Malaysian stocks this year are almost double the 6.9 billion ringgit for the whole of 2014, exchange data show. Overseas investors have been net sellers for 14 straight weeks through the week ended July 31, the longest selloff since 2008, according to MIDF Amanah Investment Bank Bhd.

“Over the short run, this remains a challenging trading environment in which returns will be hard to come by,” Hussein said in e-mailed comments.

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