Unit Trust: Secret Recipes to Financial Freedom
All Employees Provident Fund(EPF) contributors and potential unit trust investor must be advised properly and know the risks involved before investing in the unit trust funds.
Unit trust fund investment is NOT the quick secret recipes to Financial Freedom.
It timely and a good moves for the EPF to working on tightening the unit trust fund investment guidelines to further protect contributors’ retirement savings.
It was reported that EPF now was working with the Federation of Investment Managers Malaysia and a new guidelines will be expected to be in place by the second half of this year.
EPF contributor has invested a total of RM3.31 Billion into the Unit trust fund investment(approved for the EPF scheme) in the year 2009 alone.
Just calculate how the Unit Trust Consultants(agents) collected in term of Commission?
Now you know why most of them drive the latest BMW and Mercedes-Benz flashy cars.
A lot of people who had lost their investments in unit trust funds due to price fluctuation and not aware of the unit trust work.
Some people even think unit trust is like a fixed deposit.
Some uncles complaint to me that the bank officer advised him to shift his money from fixed deposit(retirement fund) to unit trust in order to gain higher rate of return.
Every month without failed, Uncle A would go to the bank to withdraw the interest earned from fixed deposit.
One day the bank officer advised him to put the money to unit trust and get to enjoy higher “return”. Uncle A agreed without knowing exactly what the risk involved.
Due to price fluctuation, Uncle A’s unit trust fund investment value almost reduce to half of the initial investment.
Uncle A cannot go to bank every month to collect money from unit trust fund investment anymore.
It is a sad story.
Always get yourself educated about unit trust fund investment risk and NEVER rely 100% to your Unit Trust Consultants(sales agent) advices.
What is good for their pocket may not be good for your pocket!
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EPF aims RM0.50tril mark by end-2013
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EPF tightens rules
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KUALA LUMPUR: The Employees Provident Fund (EPF) is reassessing and working on tightening the unit trust fund investment guidelines to further protect contributors’ retirement savings.
Its deputy chief executive officer (investment) Shahril Ridza Ridzuan said the EPF was working with the Federation of Investment Managers Malaysia on this.
“We hope the new guidelines will be in place by the second half of this year,” he said after a media briefing on EPF investments and launching of its Corporate Governance Principles and Voting Guidelines yesterday.
Shahril, who said qualified members were allowed to make their own investments using a portion of their EPF savings, however stressed that the EPF wanted to ensure preservation of the savings as well as a real rate of returns from the investments.
He said the two bodies were looking at agreeing to a certain set of minimum criteria before allowing withdrawals from a contributor’s accounts for investment.
Currently, there were more than 300 unit trust funds managed by 37 managers approved for the EPF scheme, he added.
In 2009, a total of 427,455 applications amounting to RM3.31bil were approved for investment withdrawals.
EPF qualitative and performance analysis department general manager Badrul Hisham Dahalan said that for the first three months of this year, an average of RM2.18bil was withdrawn out of an average of RM3.35bil of contributions received every month.
Most of the withdrawals went to housing and pensioners, followed by medical, education and unit trust investments, he said.
In another development, the 1Malaysia Retirement Savings Scheme launched on Jan 3 to help the self-employed cope with income inadequacy during retirement has attracted 12,199 members with a total of RM8.14mil in contributions as of April.
EPF public relations general manager Nik Affendi Jaafar said the contributors comprised people of all age groups in various fields such as agriculture, small businesses, fishing, transportation, direct selling and entertainment.
fr:thestar.com.my/news/story.asp?file=/2010/5/20/nation/6299013&sec=nation
EPF investments poised to hit RM500bil
KUALA LUMPUR: The Employees Provident Fund (EPF) expects its investments to reach RM500bil by end-2013, said deputy chief executive officer (investment) Shahril Ridza Ridzuan.
He said the fund’s investments stood at RM385bil in the first quarter of this year compared with just RM9bil in 1980. The EPF has over RM370bil in funds.
“We are chalking up about 8% compounded annual average growth now and by this, we expect our investments will be RM500bil by the end of 2013,” he said yesterday at a media briefing and media launch of EPF corporate governance principles and voting guidelines.
“There are two things that support the 8% annual growth. One is that when we pay dividends, we don’t pay in cash but credit the amount into investors’ accounts and reinvest,” he said.
The other, he said, was that the country continued to grow in terms of population and this brought in a net inflow of workers.
“The total gross net income contribution exceeded the net outflow as a result of people retiring,” Shahril said.
He also said the EPF was guided by the Risk Appetite Statements, where it would not tolerate a greater than 10% chance of dividends falling below 2.5% in any year over the next 10 years.
“We too will not tolerate a greater than one third chance of the annualised dividends falling below inflation +2% over any rolling three-year period,” he said.
On the booklet launched yesterday, Shahril said it was part of the group’s efforts to promote and educate companies on corporate governance. “Investors and regulators can expect to see better corporate governance from investee companies with the introduction of this booklet,” he said.
Shahril said the EPF believed that good corporate governance was not only about commitment to values and ethical business conduct but also about how an organisation was being managed. The booklet, which will serve as a guide to EPF and investee companies, was aimed at being more stringent on corporate governance issues that emphasise accountability, integrity and transparency of the boards of directors and disclosures made by listed companies.
Among the booklet’s focus areas were size and composition of the boards, separation of power between the chairman and the chief executive officer, re-election of directors, board committee, authority of allot and share issues pursuant to Section 132D of the Companies Act 1965, employees share option schemes, related-party transactions and dividend policies.
fr:biz.thestar.com.my/news/story.asp?file=/2010/5/20/business/6298144&sec=business
I agree that one needs more education on unit trust. There is a lot of myths on unit trust investment among Malaysians. Many investor, especially the less educated group, invested into it without understanding it’s risk. My father-in-law almost became a victim a few years ago. When he was at the bank to renew his FD, a bank officer sold him into unit trust without explaining the full picture to him. He thought that he has invested into a FD with higher interest rate. After I explained to him the full risk exposure, he was so angry and went back immediately to cancel the purchase.
OCBC waives upfront charges for equity fund sales
PETALING JAYA: OCBC Bank (M) Bhd’s move to market equity funds without upfront sales charges, hence making it the first bank to do so, is not expected to significantly impact the sales of unit trust funds of other players but may set the stage for the launching of similar funds to boost market share.
At the moment, there is no regulatory requirement for fund houses or institutional unit trust agents or advisers like banks to sell funds without upfront charges unlike in the west where this practice is more rampant.
Industry players feel there are other vital factors that affect investors decision to invest in funds like investors’ risk profile, the quality of funds and fund performance.
Some observers opine that the move by OCBC would lead to other players taking the same route in coming out with funds with no upfront charges. Some argue that the upfront charges of up to 5% would help investors secure better returns at the time of investing even though they may have to fork out higher management and redemption fees.
As OCBC Bank head of consumer financial services Charles Sik puts it: “Investors can now earn from the very start rather than begin with unit trusts to recoup “early losses” incurred through the upfront fee.”
On March 4, The Pacific Elite funds with no upfront charges were launched by OCBC Bank as a distributor and managed by Pacific Mutual Fund Bhd.
The average annual management fee for a traditional unit trust equity fund in Malaysia is between 1.5% and 1.85% and a redemption fee of 1% is charged if the investor exits from the funds within three years.
OCBC Bank head of wealth management Ong Shi Jie, responding to a query from StarBiz, said: “Although our management fees are marginally higher, this does not compensate “like-for-like” for the loss of income from upfront charges.
“The aggregation of a customer’s wealth through other OCBC products will more than compensate us for the absence of upfront sales commissions for our Elite funds.
“Other developed markets have successfully found ways to bring sales charges down to lower levels than that of Malaysia and we are looking to meaningfully replicate this here. From our current experience, customers are warming up to our approach because they can now be free of the prohibitive burden of making upfront payments before even seeing returns.”
Meanwhile, AmInvestment Bank Group director for retail funds (funds management division) Ng Chze How felt the key for a successful fund was based on its value and not pricing.
Cheap doesn’t mean it is necessarily good and vice versa. The end game was delivering real value to customers based on their needs and requirements, he added.
Although conscious of customer pricing, he said the bank had other plans to increase its market share which included a multi-strategy approach to reach out to clients and provide what satisfied them the most.
This includes leveraging expertise in funds selection, customer profiling, fund performance, and other comprehensive consumer products and services to reward customers.
The total unit trust management fees secured by the AmBank Group for the financial year ended March 31 was about RM60.5mil, contributing 11.2% of total group’s fee income.
Hong Leong Bank Bhd (HLB) chief operating officer, personal financial services, Moey Tan agreed with Ng that a fund with no upfront sales charge should not be the determining factor in selecting a fund.
She stressed that customers needed to take into account certain key factors before deciding on suitable funds. This encompasses a fund manager’s track record and investment strategy and objectives, key investment theme and whether the fund is part of their core portfolio or a key tactical fund as well as the key risks taken to derive the returns.
Unit trust currently contributes between 30% and 35% of HLB’s retail wealth management services fee income. The bank distributes more than 150 funds each tailored to meet the specific needs of customers based on risk profile.
HSBC Bank Malaysia Bhd general manager of personal financial services Lim Eng Seong said at the moment there were no plans to distribute funds without any upfront charges unless it was a regulatory requirement for unit trusts or banks to do so.
Additionally, he noted the upfront sales charges imposed by the bank currently were fairly based on the competency of the financial services provided to its customers.
“While management fees and annual fund expenses vary from fund to fund, it is generally understood that a fund with higher costs would need to outperform a lower cost fund in order to generate the same quantum of return or to break even.
“This means even small differences in the management fees could translate to a substantial difference in returns, should investors hold the investment for a longer term,” he added.
RHB Banking Group director of retail banking Renzo Viegas said the bank at present was distributing 151 funds (136 open ended funds and 15 closed ended funds) and the key to determine its funds distribution was that the funds must fall into the bank’s investment plan and benefit customers.
At present, Viegas added that unit trusts fee income was not a significant portion of the banks fee income; however, it was expected to rise in the coming years as more customers saved and needed help to manage their wealth.
For Alliance Bank Malaysia Bhd, executive vice-president and head of consumer banking Liew Swee Lin said the unit trust business had generated a healthy portion of the bank’s wealth management fee income in its last financial year ended March 31, 2010.
Liew said the bank expected a year-on-year growth of more than 100% this year from the previous year.
She advised investors to be vigilant when investing in no-load funds as they usually had hidden fees and other related costs.
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EPF members can buy unit trust with up to 30% foreign portfolio from August
By DALJIT DHESI
KUALA LUMPUR: Effective Aug 1, funds that have higher consistent returns for at least three years and those with a foreign portfolio component of up to 30% would be made available for sale to Employees Provident Fund (EPF) members.
This meant that funds with less than three years track record and newly launched ones would not be sold to EPF members.
Federation of Investment Managers Malaysia (FIMM) president Tunku Ya’acob Tunku Abdullah said the move would further instill trust and confidence in unit trust investment and enhance investment options.
To achieve the above objective, FIMM would introduce a performance focus methodology to measure funds under the EPF Members Investment Scheme annually.
“Funds that consistently have higher performance relative to its peers in the same category will be made available for sale to EPF members. Those that generate returns but not as high as their peers and do not meet a certain criteria, will be suspended for sale.
“These funds can be re-instated when they eventually meet the criteria. The evaluation methodology for sale of funds as well as those with foreign exposure are expected to be implemented in August,” he said at a press briefing.
fr:biz.thestar.com.my/news/story.asp?file=/2010/6/4/business/20100604125059&sec=business
Malaysia Seeks to Lure Individual Investors Decade After Crisis
Malaysia’s bourse said it’s seeking to lure individual investors who have shunned the market a decade after the Asian financial crisis.
Bursa Malaysia Bhd. is working with brokerages and banks to “to reach out to retail investors in various towns and cities” to open up accounts and encourage online trading, Chief Executive Officer Yusli Mohamed Yusoff said in an interview in Kuala Lumpur.
Trading by individuals fell to as low as 20 percent of trading value from more than half before the start of the Asian financial crisis in 1997, when the benchmark index slumped by a record 52 percent.
“A lot of retailers lost a substantial amount,” Yusli said yesterday. The result is that the market is now “dominated by the local institutions,” he said.
Most individual savings started shifting to mutual funds and unit trusts since Malaysia’s economy went into a recession in 1998, Yusli said. They haven’t returned to stock trading even as the economy expanded at an annual average of 5 percent over the past decade and the benchmark index more than doubled.
The FTSE Bursa Malaysia KLCI Index has climbed 1.2 percent so far this year, paring a gain of as much as 5.8 percent amid concern austerity measures in Europe will reduce demand for the Malaysia’s technology and commodity exports.
Lagging Behind
The KLCI’s 45 percent gain last year lagged behind Southeast Asian neighbors even after the government announced stimulus plans totaling 67 billion ringgit ($20 billion) to help pull Southeast Asia’s third-largest economy out of a recession.
Trading slumped by half to an average $375 million a day over the six months ended May from the same period 13 years ago, right before the start of the regional financial crisis in July 1997, according to data compiled by Bloomberg. Neighboring Singapore’s figures have quadrupled to $1.1 billion over that time, data from the city-state’s exchange show.
“People’s risk appetite is not there anymore, not like those days,” said Lye Thim Loong, who helps manage $500 million at Avenue Invest Bhd. in Kuala Lumpur. “Those who traded recklessly with no fundamental reasons got burnt.”
The slump in trading by individuals coincided with an exodus by foreigners from Southeast Asia’s second-biggest stock market, leaving Bursa more reliant on domestic institutional funds. Overseas investors have sold a net 1.36 billion ringgit of Malaysia’s equities this year, adding to 8.57 billion ringgit withdrawn in 2009 and 38.6 billion ringgit that flowed out in 2008, according to exchange data. In 2007, they bought a net 24.7 billion ringgit.
Foreigners
The exit left foreigners holding 20.6 percent of local stocks at the end of April, down from 27.5 percent in April 2007, according to stock exchange data. Overseas investors held 9.33 percent of Tenaga Nasional Bhd. at the end of April, compared with 27 percent in April 2007, according to data from Malaysia’s biggest power producer.
The state-controlled Employees Provident Fund accounts for 50 percent of daily trading volume in the equity and bond markets, Prime Minister Najib Razak said on March 30. More than half of the 417.1 billion ringgit of market value in the benchmark stock index is owned by government-linked funds, according to calculations by Bloomberg.
“We’d rather see a more balanced distribution, so that one particular sector doesn’t dominate the market so much,” Yusli said.
Retail investors’ share of trading is low by comparison with at least one neighbor, Thailand, where individuals accounted for 56 percent of turnover so far this year, according to data compiled by Bloomberg. Exchanges in neighboring Indonesia and Singapore don’t track the figures.
“There has been some increase in the total of retail account sign-ups recently, but the amount is negligible,” Alex Hwang, chief executive officer of HwangDBS Investment Bank Bhd. in Kuala Lumpur, said in an e-mailed reply to questions. Investors are “more careful these days due to the volatile market,” he said.
fr:businessweek.com/news/2010-06-08/malaysia-seeks-to-lure-individual-investors-decade-after-crisis.html
More EPF members making withdrawals for unit trust plan
KUALA LUMPUR: A significantly larger number of Employees Provident Fund (EPF) members have opted to withdraw part of their retirement savings for investment in unit trusts.
The amount withdrawn under Members Investment Withdrawals in the first quarter of 2010 rose 43.26% to RM911.15mil from RM636.01mil withdrawn in the corresponding period last year, said EPF in a press statement.
Total applications approved under this withdrawal increased to 113,809 from 87,420 in the same period last year.
“The increase in withdrawals for investments is in tandem with the recovery in the domestic economy that began in the third quarter of 2009, and has since continued to gain momentum,” said EPF chief executive officer Tan Sri Azlan Zainol.
He added that the increase was also attributed to the rise in the number of members who were eligible for investment withdrawals.
Priority towards prudent investing was also reflected in the increasing number of retirees who opted for Flexible 55 Withdrawals to stretch the value of their retirement savings as opposed to Lump Sum Withdrawals.
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EPF-FIMM move on investments draws mixed response
Fund managers say there are pros and cons in limiting investment to funds with at least a three-year record
PETALING JAYA: The move to allow Employees Provident Fund (EPF) members to buy only funds with a track record of at least three years has drawn mixed reactions.
Effective August, funds with a less than a three-year performance track record as well as newly launched ones will not be sold to EPF contributors.
The new rulings also reinstated a previous move to allow EPF members to invest in funds with foreign exposure, but now with a limit of up to 30%.
The Federation of Investment Managers Malaysia (FIMM) recently said the reason to allow EPF members to invest in performing funds — those that have higher consistent returns for at least three years, was to strengthen trust and confidence in unit trust investment.
Efficient Frontier Capital Advisors Sdn Bhd executive director Munawir Mohammad said while he appreciated the rationale behind the three-year track performance ruling, he felt members might also lose out as good investment “windows” did not last that long.
He pointed out that this was especially true for “thematic” investments. Thematic investing is an approach that seeks to identify and capitalise on economic, political, and social trends that are likely to have significant implications on important sectors of the economy and financial markets.
Munawir added that the 30% limit was still low and that the EPF should consider admitting funds with higher foreign exposure as investment opportunities appeared under many themes and more often outside Malaysia.
From a risk management point of view, he said members’ investments should be looked at “in total” as EPF has its own internal mechanisms to safeguard contributors’ savings for old age. But Areca Capital Sdn Bhd CEO Danny Wong has described the EPF-FIMM move as a good one as the three-year performance time frame would help investors choose funds that perform consistently and eliminate those that underperform.
But he warns that the selection criteria may lead members to focus too much on the past performance of a fund which may not necessarily be indicative of future performance.
There are other factors to consider in choosing the right investments, such as risks profiling, time horizon, qualitative factor and others, according to Wong. He said he supported the 30% foreign exposure limit, adding that it reflected the cautious stance of EPF in not wanting its investors to be over exposed.
HwangDBS Investment Management Bhd chief investment officer David Ng feels the EPF’s and FIMM’s efforts in setting minimum qualification standards for funds provides a more thorough screen or control in terms of the type of products that can be offered to EPF contributors.
For the industry, Ng said it meant fund managers would have to improve their performance and maintain an acceptable and consistent standards, which were critical for funds meant for retirement. “I see this as the first level of screening where offerings are limited to a qualified few. The next step is to ensure investors are well-informed of what they are investing in and the incidences of mis-selling are minimised,’’ he said.
The Federation of Malaysian Consumers Association (Fomca) secretary-general Muhammad Sha’ani Abdullah said unit trust companies offering products to EPF members should offer guaranteed minimum returns higher than the current EPF dividends, and that members opting for returns from financial markets must be protected through the imposition of standard obligations on fund managers.
Consumer Association of Penang (CAP) president S.M. Mohamed Idris said the association was against EPF members investing in unit trusts as many did not understand the risks involved.
He said many “had been burnt” by investing their EPF savings in unit trusts and that they would have done better by leaving their retirement savings alone.
fr:biz.thestar.com.my/news/story.asp?file=/2010/6/24/business/6522319&sec=business
EPF to allow members to buy quality funds
KUALA LUMPUR: Effective August, Employees Provident Fund (EPF) members will be allowed to buy only quality funds with consistent returns over a period of time in a bid to safeguard their investments in unit trusts.
At the same time, investment by members into funds with a foreign exposure would be reinstated but with a limit of up to 30%.
Federation of Investment Managers Malaysia (FIMM) president Tunku Ya’acob Tunku Abdullah said yesterday that EPF had agreed with the federation to allow their members to buy performing funds – those that have higher consistent returns for at least three years to further instill trust and confidence in unit trust investment.
This means that funds with less than three-year track record and newly launched ones will not be sold to EPF depositors.
The reinstatement of funds with foreign exposure would enable EPF members to enhance their investment options and diversify their risk portfolio, he added.
In early 2005, Bank Negara liberalise the overseas investment rules whereby EPF members were allowed to purchase without any limits funds with foreign exposure.
Then in 2007, EPF disallowed it, stating among others, it needed further study on the impact of such funds performance.
To ensure consistent performing funds, FIMM would introduce a performance focus methodology to measure funds under the EPF Members Investment Scheme annually.
“Funds that consistently have higher performance relative to its peers in the same category will be made available for sale to EPF members. Those that generate returns but not as high as their peers and do not meet a certain criteria, will be suspended for sale.
“These funds can be re-instated when they eventually meet the criteria. The evaluation methodology for sale of funds as well as those with foreign exposure are expected to be implemented in August,” he said at a press briefing.
Tunku Ya’acob said currently more than 300 funds under the scheme would undergo the evaluation process and the final list would be announced in due course.
Out of this total, he expected 5% of the funds to be suspended for not meeting the relevant criteria, but would qualify if their performance improved.
A person familiar with the matter told StarBizWeek that successful funds would be listed on FIMM and EPF’s websites. “These performing funds would have their names on the websites but will not be given ratings as FIMM and EPF are not in a position to do so.
“Suffice to say that these funds have been evaluated with the right methodology. EPF members will benefit from this move,” the person noted.
FIMM executive director Lee Siew Hoong said the methodology would evaluate relative performance on funds among peers with at least three years of track record in line with international accepted practices.
A period of three years was deemed to be the minimum period to evaluate the longer- term performance of the fund as unit trust investment was for the medium to long term, he noted.
Lee said funds must meet certain criteria including consistency and risk-adjusted return performance before they are allowed to be offered to EPF members.
The methodology uses an international research house rating data to calculate the criteria, he said.
fr:biz.thestar.com.my/news/story.asp?file=/2010/6/5/business/6407558&sec=business
EPF net income at RM19.63bil, declares 5.65% dividend
PETALING JAYA: The Employees Provident Fund (EPF) recorded a net income of RM19.63bil for the financial year ended Dec 31, 2009, its highest ever, declaring a dividend rate of 5.65% for the period.
“In line with the EPF’s prudent strategy of ensuring members’ savings were well protected for the long term, 72.53% of investments were channelled towards more secure, low-risk fixed income instruments while 27.05% was devoted to higher return equities (with a tolerable level of risk) and the remainder in property,” the EPF said in a statement yesterday.
This allowed the EPF’s investment portfolio to grow 8.55% to RM371.26bil as at Dec 31, 2009 from RM342.01bil in the previous year, it said. The EPF’s highest income earner were loans and bonds, which represented 42.76% of its total income, followed by equities (28.36%), Malaysian Government Securities (25.87%), money market instruments (2.5%) and the balance in property and miscellaneous income.
The EPF said it continued to leverage on information and communications technology (ICT) to improve operational performance and provide the best service to its members.
“The greater use of ICT enabled the EPF to process 1,949,606 withdrawal applications compared with 1,414,932 applications in 2008. A total of RM21.31bil in withdrawals were recorded compared with RM18.16bil in 2008,” it said.
As at Dec 31, 2009, the EPF’s membership had risen to 12.35 million from 12.07 million a year ago. Of this, the number of active members (contributing members) increased marginally by 1.4% to 5.79 million versus 5.71 million members in 2008.
The number of employers registered with the EPF rose 2.69% to 453,716 in 2009 compared with 441,820 in 2008.
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EPF plan targets housewives
PETALING JAYA: Housewives can now save up for their golden years under the Employees Provident Fund (EPF) 1Malaysia Retirement Savings Scheme.
The scheme, implemented in January, has attracted 14,786 people with a total contribution of RM13.2mil.
“The scheme has growing appeal among taxi drivers, fishermen, farmers, freelancers and others. We are now targeting housewives,” said EPF chief executive officer Tan Sri Azlan Zainol in a statement yesterday.
The scheme, open to individuals up to the age of 55, was introduced to provide financial security to those who are self-employed and do not have a fixed monthly income.
Under the scheme, contributors will receive annual dividends from EPF and also benefit from an additional 5% government contribution of up to RM60 per year over the next five years (2010 to 2014).
“The appeal of this scheme is based on two factors. First, everyone knows it is the right thing to do – to save for their retirement.
“Second, it is affordable to set aside as low as RM50 per month for their retirement,” Azlan said.
He added that contributors did not have to deposit funds every month like the mandatory EPF savings scheme but whenever they could afford to.
Those under the scheme are allowed to contribute a maximum of RM5,000 a month.
“The scheme gives the self-employed plenty of flexibility.” Azlan said.
Those interested may apply for the scheme by filling up the KWSP 16G (1M) form at any of the EPF branches nationwide or by downloading the form online at kwsp.gov.my.
For more information, please contact 03-89226000.
fr:thestar.com.my/news/story.asp?file=/2010/7/20/nation/6695236&sec=nation
Big potential in local fixed income, equities
By TEE LIN SAY
CIMB-Principal’s Tang also bullish on soft commodities
KUALA LUMPUR: While most people look outside Malaysia for investment opportunities, CIMB-Principal Asset Management Bhd chief investment officer Raymond Tang sees opportunities in fixed income and equities within Malaysia, especially with foreign money coming in.
“In the last three to five months, we’ve had lots of money coming in. This is partially because the central bank has raised interest rates. The early phase of investors will invest in bond instruments before moving on to equities,” he said.
Some bond yields have been coming down because of the huge demand from foreign money. As these yields go lower, equities will start to look attractive.
While Tang said equity markets may look expensive over the short term, they were not overpriced over the medium term.
The markets, he added, had already priced in the slower growth in the United States, the risk of a double-dip and the drop in Malaysia’s exports.
“In a worst-case scenario, if all these negatives come true, the market will stay flat. After all, expectations are already down. However, if there is just one catalyst or good news, the market will re-rate,” he said.
Tang said the New Economic Model (NEM) was a shift in the right direction. Under the NEM, the corporate bond market may also become active as more corporates raise money for projects.
Tang is also awaiting the Budget 2011 announcement. He believes that there could be more incentives for the services sector.
Valuation-wise, the average price/earnings (PE) ratio of the FTSE Bursa Malaysia KLCI is 15 times.
Tang said the market was now trading at 14 times PE and it may go down to 13.5 times next year.
“There is room for our market to move up gradually. Asia is slowly decoupling from the West. As growth in the US market is still questionable, Asia becomes more attractive.
“Western funds will realise that for every investment they put in the US, they are getting more in Asia,” he said.
It is on the back of this broad diversification move from the United States to Asia that makes Tang bullish over the mid-term outlook.
Tang is also bullish on soft commodities as he said arable land was becoming scarcer while populations continued to grow.
Soft commodities are also not recyclable.
“Every year there are more mouths to feed. To produce one kg of meat, you need 6kg of wheat. Animals are competing with humans for food,” he said.
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More funds invest in offshore properties
By ANGIE NG
The search for higher yields lures cash-rich funds overseas
PETALING JAYA: More Malaysian institutional funds, including Permodalan Nasional Bhd (PNB) and the Employees Provident Fund (EPF), are looking to raise their exposure in offshore property investments such as in Australia and the UK.
Last month PNB acquired its first property in Australia with the purchase of Santos Place in Brisbane for A$287mil (RM838.19mil). The 36-storey Premium A grade office tower with 34,338 sq m is said to be the largest six-star environmentally rated building in Australia.
Following on the heels of PNB’s foreign venture, the EPF had at the end of August announced that it would be investing £1bil (RM4.88bil) in European property markets, focusing on the UK.
The fund had said that the investments would be for the long term with expected annual yields of 6% to 7%.
Industry observers said another potential candidate for offshore property investment was Kumpulan Wang Persaraan (KWAP).
According to the fund in its recently upgraded portal, the objective of its property investment initiatives is to invest in strategic properties for steady income with growth potential on rents and capital values in order to achieve commendable returns that contribute well to KWAP’s overall goals.
“Prospective investments in property can be domestic or foreign based with a preference for locations in central business district and urban areas. Acquisition of the strategic assets can be via direct acquisition or partnership.
“The risk exposure of property investments should not exceed 30% of KWAP’s Strategic Asset Allocation. Moreover, the property portfolio itself shall be well diversified based on locations, types, sectors and sizes,” KWAP said in the website.
PNB’s acquisition of Santos Place is said to be the largest commercial property transaction in Queensland since the global financial crisis. It was brokered by CB Richard Ellis and Jones Lang La Salle.
According to CB Richard Ellis Malaysia executive chairman Christopher Boyd, who was one of the agents for the PNB deal, Malaysian funds are venturing offshore to diversify their risks and to go to markets where returns and capital values are higher.
“They are entering markets that offer higher income assets as they have a commitment to pay out dividend yields of 5% to 7% per annum,” he told StarBiz.
Santos Place is fully tenanted and more than 40% of the office space is leased to Australian oil and gas exploration and production group, Santos Ltd. Petronas is also one of the tenants.
“The vendor, Nielson Properties, has given a guarantee of an annual yield of just under 8% for the building. The yield is quite attractive considering that Malaysian properties are offering yields of only 6% to 6.5% a year,” Boyd said.
He added that the performance of office buildings in general “is a proxy for the country’s economy and how it fares is as good as the tenants that occupy them.”
“This is a good time for the funds to snap up good quality property for long-term investment. Investing in offshore property market is a cyclical play and it is important to get the timing right when the market is on the verge of an upturn,” Boyd added.
Most of the traditional buyers of investment property in Australia are institutional funds such as mutual and pension funds and REITs, but they are quite cash strapped now and are not active in the market.
He said the domestic buyers were expected to only start getting back to the market within the next 12 months and the valuation of the property assets was still quite attractive.
“Given that there is still room for capital appreciation for good quality investment property Down Under, it is a good time to leverage on the market. The quality of the tenants there is also highly rated and they usually sign up for long-term tenures of 10 to 15 years. The rental rates will be reviewed every three to five years,” he added.
Besides office buildings, investors Down Under are also keen on good retail centres as well as industrial and logistics buildings.
CB Richard Ellis executive director Paul Khong said there were also strong interests from Malaysian developers in Australian development projects especially in Sydney and Melbourne.
“They are looking at redevelopment of commercial and residential sites and also joint venture opportunities. Some have already set up shop there.”
Khong said Malaysians generally ranked very high on the investment list for Australia and UK properties as a majority of individual investors would have one of their children studying there or would be going abroad to pursue their studies soon.
“This is a natural push for our local investments to head this way. The investors will be looking at yields of 6% to 8.5% (initial yield) depending on property type, size of investment, location and country. Many projects have seen good or even double-digit capital appreciation over the last five years,” Khong added.
fr:biz.thestar.com.my/news/story.asp?file=/2010/9/23/business/7084141&sec=business