Malaysian investors looks outwards

Although the Malaysian market has been effectively underweighted by foreign investors for over two years, it looks like this status quo could as locals start to look outwards for regional investment ideas. Recent legislation has allowed more freedom for local investors to invest overseas with the results that the focus over the past 6-12 months and going forwards have been careful dipping of toes into regional markets. Whilst the absolute amounts raised over the last 6-12 months remain relatively small in the grand scheme of things (estimated at US$500m), the level of interest and foreign investment is escalating.

This development is hardly surprising as the longer the Malaysian market languishes in absence of positive news flow or catalysts, the appetite for foreign exposure will continue to grow. Functionally, it is unlikely that any fund is fully invested to the maximum 30% levels permitted at this point. However, we already are seeing recent fund launches focusing on regional markets and that is expected to continue. The baptism of domestic fund managers into regional markets will mean an initial conservative approach but expect that to change as they move up the learning curve.

Value and yield wrapped by a focused strategy seems to be a common theme and this is unsurprising. In view of this, the Malaysian market overall is likely to suffer, especially small caps, which are predominantly focused on by domestic investors. In our filters, there are interesting ideas and value emerging, however, it remains too early, in my view to trawl through the Malaysia market looking for bargains. The broadening investible horizon would suggest the lofty valuations previously seen would unlikely to be reached again barring company specific factors.