Malaysia on radar of fund managers

ATTRACTING ATTENTION: Local and foreign investors like what they see and are taking a new look at the country


SOUTHEAST Asia's resilience to the global economic downdraft, as strong domestic demand helps offset weaker exports, has made it the darling of investors.

This resilience was highlighted by the climb in consumer confidence in Thailand and Indonesia in June, while Malaysian imports in May smashed forecasts.

"Southeast Asia is the darling of Asia and the darling of investors this year," said Paul Joseph Garcia, chief investment officer at BPI Asset Management in Manila, which manages US$17.2 billion (RM55 billion) in assets.

"If you look at Indonesia, the Philippines, Thailand, Malaysia and, to a certain extent, Vietnam, these are domestic-driven economies," he said.

Central banks in the region have been able to maintain an accomodative stance and can ease policy further if needed, again unlike many of their developed nation counterparts, which have cut interest rates to near zero and are running out of ways to revive business activity.

Such policy flexibility was evident in Malaysia's trade data released earlier on Wednesday, which showed May imports rose 16.2 per cent from a year earlier, nearly twice economists' forecasts.

The jump reflected strong demand for capital goods after the government announced a slew of mega-projects in the oil and gas as well as transportation sectors, including a RM36.5 billion mass rapid rail project.

Indeed, domestic demand in Malaysia has been so strong that policymakers are now worrying more about the risks of growing household debt than the weak global economy.

With that in mind, the country's central bank kept interest rates unchanged at a meeting on Thursday.

Local and foreign investors obviously like what they see.

After years of complaining about the listless and government-dominated Malaysian stock market, many fund managers are taking a new look at the country, which is poised to become Asia's top initial public offering (IPO) destination for 2012, while other markets globally are floundering.

Malaysia on Tuesday launched a US$2 billion (RM6 billion) IPO of state-backed hospital operator IHH Healthcare, which will be the third biggest listing of the year globally after local palm oil producer Felda Global Ventures and Facebook.

The issue, one of few available plays on the healthcare sector in Asia, will be dual-listed in Malaysia and Singapore.

To be sure, the region and its markets have not been totally immune to global market turmoil.

Motor racing firm Formula One decided last month to send its near US$3 billion (RM9.5 billion) flotation in Singapore back to the pits as Europe's debt crisis deepened, prompting investors to dump riskier assets worldwide.

But with Europe's recent agreement on ways to help the region's stricken banks, global and regional markets have shown some signs of stabilising and Southeast Asian stocks are again powering ahead.

For the year to date, shares in Manila have surged more than 22 per cent to all-time highs, while Thailand's benchmark index have risen more than 16 per cent and Singapore has gained more than 11 per cent. Malaysian shares also hit record high on Wednesday, taking its gains for this year to more than five per cent.

The Philippines, once known as the "sick man of Asia", took a highly symbolic step this week in a bid to put decades of sub-par economic growth behind it. For the first time in history, Manila is about to jail a tax evader, puncturing a culture of impunity that has discouraged many foreign investors.

And the region's stock markets may remain attractive in the long term, too.

Morgan Stanley said in a recent research report that there is a growing probability Asean may witness a sharp rebound in its investment cycle, driven by a combination of private investment in capacity creation, foreign direct investment and private and public investment in infrastructure over the next two to three years.

"Our economics team is forecasting the average investment percentage of GDP (for Indonesia, Thailand and Malaysia) to rise from 22.7 per cent in 2011 to 23.2 per cent and 23.6 per cent in 2012 and 2013, respectively.

"We believe that there could be upside risk to the outlook for consensus investment growth for Asean, if the current trend persists," it said. Reuters