NEW Aberdeen Islamic Funds

Aberdeen Islamic Asset Management Sdn Bhd has recently launched two shariah unit trust funds for the Malaysian market, the Aberdeen Islamic Malaysia Equity fund and the Aberdeen Islamic World Equity fund. The new funds are the company's 1st shariah retail products in Malaysia - and the 1st from a foreign fund manager under the special scheme - and come almost 8 years its parent company Aberdeen Asset Management Sdn Bhd was established to manage assets in Malaysia for institutions and corporate investors.

Malaysia: Turning promise into profit

Malaysia has long been rich in promise - rich because of its abundant natural resources, physical infrastructure and educated workforce. However it has not always maximize its advantages. In recent years that has changed as the country streamlines priorities. There is more emphasis now on efficiency, the private sector has a greater say across industries and more value is being created for shareholders. This enterprise is taking Malaysian companies overseas, too, helping businesses to sharpen their competitive edge.

Why Global then?

International markets are continually evolving, underpinned by increased movement of people, goods and capital around the world. But far from embracing 'globalization', research shows that investors tend to follow a home-country bias when it comes to their investments. As a result, they miss out on investments overseas that may offer steadier long-term returns as well as superior risk diversification.

Fund Detail

Source: Aberdeen Islamic Asset Management

CLSA Malaysia Politics Market Strategy

There is no better time to blog about this post. After the plunge of KLCI yesterday, citing election risk, we came across an interesting research report by CLSA. As such, we would like to take this opportunity to share with you.

By CLSA,

An unexpected opposition Pakatan Rakyat (PR) coalition victory in the impending 13th General Election (13GE) would spark a broad sell-off in Ringgit assets. Changes of government are not uncommon in ASEAN. Looking at the experience of Indonesia, Thailand and the Philippines over the last decade, parliamentary control has seen significant shifts and governance has been possible despite the lack of a parliamentary majority. However, Malaysia has never experienced a change in government, meaning any change will come as a shock and with a host of uncertainties.

From an equity and debt market perspective, Malaysia has always enjoyed a political premium for the stability in governance and policy-setting stemming from majority control of parliament. The immediate financial market repercussions can be grouped as follows:

• Equity and bond markets sell-offs are likely as Malaysia's political stability premium is erased, at least temporarily. Domestic corporate, many of which have deep links with the existing government, will be putting big-ticket decisions on hold pending guidance on continuity;
• Ringgit depreciation can be expected in parallel with the sell-off in Malaysian assets by foreign investors. This will pose another drag on broad corporate and foreign investor confidence, especially foreign debt (though positive impact on exporters should not be forgotten).
• And, subsequently draw unfavorable attention from international rating agencies.

Near-term policy expectations

• PR's stated policies are broadly aimed at raising disposable incomes, improving fiscal governance (key revenue generator), and encouraging private investment.
• Higher minimum wage and lower car prices will support consumer spending, while cutting ASEAN-topping corporate tax rate would reassure corporate and investors.
• State oil company Petronas will get more resources to invest in rebuilding reserves.

Medium-long term policy focus

• PR's desire to "rebalance" government contracts and agreements means negative overhangs for state-dependent entities i.e. utilities, concessionaires, construction.
• Banks as large holders of private sector bonds will face negative risk perception.
• Reversing GLC dominance (Iskandar not impacted) will boost private investment and FDI; Khazanah could accelerate local asset disposals, lifting Bursa's free-float.

"Rain or Shine" stock picks

• At the macro level, companies with government-dependent contracts, licenses and concessions will see sustained negative overhang and discounting, while consumer and oil & gas sectors will benefit from rising disposable income and Petronas capex.
• Our "rain or shine" stock picks are expected to do well under either a BN or PR-led government, with earnings underpinned by higher disposable incomes, Petronas association, overseas earnings contribution buffer and a weaker currency.
• A market sell-off would be a prime opportunity to add to positions in Axiata, PGas, UEM Land, IHH, Sapura Kencana, AirAsia and exporters e.g. rubber glove players.

Source: CLSA Asia-Pacific

TA 2013 Malaysia Outlook: Ride the Volatility

By TA Securities,

We believe 1H13 will be a choppy period and election concerns could drag down the FBM KLCI by 8% to 10% in the period before market rebounds in the 2H13. The impetus for revival will mainly hinge on the end of election overhang and strong domestic demand.

Sustained monetary easing on the back of low inflationary pressure and attempts to reduce budget deficits by cutting subsidies and channeling the savings to productive ventures are positive despite the short-term impact on earnings. Overall, domestic economy will play an integral role in sustaining confidence in domestic equities next year in the absence of any overwhelming micro drivers.

Corporate earnings for 9M12 were less robust and we forecast full year earnings growth for the FBM KLCI to be 9.4% only. Chances of a strong revival in the immediate-term are minimal based on external sentiment and dwindling demand in key export markets. Our earnings growth forecast of 8% and 8.4% for CY13 and CY14 is not compelling vis-a-vis key regional emerging market's 16.1% and 14.7% respectively. It could come under further pressure if the implementation of minimum wages had greater impact in raising the input cost than the intended increase in disposable income and spending. High likelihood of subsidy cuts (electricity tariff and fuel price increases) post 13th General Election would be negative on earnings and will prompt us to trim our CY13 and CY14 forecasts by 1.2% and 4.9% respectively.

How about Foreign Markets?

External factors will continue to dictate the market directions. The structural flaws cannot be undone overnight but expect bouts of positive improvements to kick in the 2H13 as fats are trimmed and jobs created. China could revive its domestic growth without stoking inflationary pressure but it can be destabilizing factor if its row with Japan escalates. The same applies to Iran and the West.

Can KLCI end Strong this year?

We derived our end-2013 target of 1,710 for FBM KLCI after applying 2008-2011 average forward PER of 14.3x on mid-cycle EPF of 120 sen. The underlying key assumption is that BN will return to power with slim majority. This target is a 5% discount to our bottom-up valuation of 1,800.

FBM KLCI performance before and after 2008 Malaysia's election

Strategy...

Sell-on-strength, especially overvalued defensive plays in the Consumer, Healthcare and Telco sectors and turn cash-heavy to accumulate high beta plays in domestic sectors, which are mainly related to Construction, Oil & Gas and Property sectors, in 1H13. Banking sector holds good buys based on their attractive valuation, still robust loan growth and bright chances of benefiting from ongoing domestic expansions.

Source: TA securities report

What's Wrong for an Economist to Predict the Upcoming Election?

I am writing this post during midnight after I came across a report saying that Bank Islam chief economist suspended after predicting that opposition will win the upcoming election. As usual, Finance Malaysia would NOT include political elements in its blog post. And, we would like to stress here again, that we are discussing this topic WITHOUT any political elements. Then, what are we talking here?

FREEDOM of VOICE & OPINION

I knew that I could not sleep if I didn't speak up for En. Azrul Anwar. We are not here to defend anyone, neither to offend any parties. But, we should open up our mind, and accept other opinions with open heart. In this matter, the said bank is losing its credibility and reputation by suspending one of its key staff --- just because of his prediction. Why can't he speak freely? Will the bank lose its banking license because of this?

Does he answer the question wrongly? NO... It's a prediction only, there is no right or wrong here.

Everyone knew that political changes is the key risk for Malaysian economy this year. Can an economist avoid this topic? Or, should they answer the same question with the same biased answer? Otherwise, who will listen to their opinions? Then, why a company hires an economist to represent them in the first place?

Funny... That's why Finance Malaysia blog is another channel for investors and readers to get 3rd party opinions and views. Blogging industry will prosper even faster, because the demand is there. Readers DO NOT want to read biased newspaper or news portal anymore. Thanks for your support. Finance Malaysia supports Azrul Anwar.

Understanding Exchange Traded Bond and Sukuk (ETBS)

Today, Malaysia achieve its first milestone in Exchange Traded Sukuk, following the launching of RM300million sukuk by DanaInfra Nasional Bhd. This is the first sukuk for retail investors. When we mention about retail investors, which refer to public, are we ready for this kind of new investment? We should better understand first before jumping onto the ship...

In short, ETBS refers to Exchanged Traded Bond and Sukuk. Generally, bonds/sukuk have always been seen as an asset class to hedge when markets are bearish and a means to develop a steady income over many years. But in the past, these was only accessible to high net worth and institutional investors. Now, with ETBS, all investors can have access to the bond/sukuk market with ease, via the stock market.

What are ETBS ?

ETBS are fixed income securities, also known as bonds or sukuk (syariah compliant bond), that are listed and traded on the stock market. ETBS are issued either by companies or governments (the issuer) to raise funds for their needs. ETBS have varying structures such as fixed rate, floating rate and hybrids.

Why Invest in ETBS ?

Here are some of the reasons to invest in ETBS:

1. Flexibility and ease of trading on Bursa Malaysia
2. Transparency, as ETBS are listed on the bourse, investors will have access to real-time prices and volumes, just like shares, with up-to-date information.
3. Diversification by including ETBS in your portfolio, to complement your investments in other asset classes.
4. Additional income stream, from the steady income stream through regular coupon payments.

What are the Factors that determine the price of an ETBS ?

1. Price and Yield
• It's all about demand and supply in the marketplace. High price, low yield. Low price, high yield. Since the coupon payments for an ETBS are generally fixed to the principal value of the bond, what you pay (price) is crucial to determine the yield.
  
  
2. Interest Rates
• ETBS is sensitive to interest rates changes. Supposing the average interest rate available to investors goes up, the ETBS' current yield will become a less attractive investment. This would caused a decline in the price of ETBS; until when the yield becomes competitive with prevailing rates. The reverse occurs, if interest rates go down.
  
  
3. Credit Risk
• Essentially, credit risk is the likelihood that the issuing entity will or will not be able to repay principal amount and its interest element at maturity. As such, corporate ETBS has higher risk than most government ETBS. It was evaluated and rated by rating agencies, such as MARC, RAM, Moody's and S&P. A top rating (AAA) means the ETBS carries the least credit risk (not without risk). Ratings can be upgraded or downgraded, thus, affecting the price.
  
  
4. Maturity
• Longer maturities have more risk and tend to priced lower (or have higher yields), because of uncertainties in future. Eventually when ETBS start to approach their maturity date, their prices start to get close to the par value.

Please take note that the minimum board lot size for ETBS is 10 units, versus 100 units for shares. You can start trading ETBS simply by opening a CDS account, just like share trading. Happy trading!!!

Source: Bursa Malaysia