Wednesday, June 25, 2014

Malaysia Dividend Yields Attractive To Investors

PETALING JAYA: Malaysia is the least favoured destination of foreign portfolio funds in Asia ex-Japan on a year-to-date basis, mainly due to expensive valuations and a defensive position at a time when most markets have been rallying. 

With the S&P 500 closing at its record high of 1,848.36 last Friday, and having gained 6.2% on a year-to-date basis, such a buoyant investing outlook has fuelled portfolio funds to put their money in the higher beta markets. 

On the other hand, with the S&P having made such strong gains, some analysts are starting to get jittery and may now consider relooking the defensive markets. Thus Malaysia, with one of the highest dividend yields in the region at 3.03%, could be a beneficiary. 

On the onset, Thailand would appear to be the least invested country by portfolio funds, with a net foreign outflow of US$1.2bil (RM3.84bil) as of June 17, according to Credit Suisse in a June 19 report. 

Nonetheless, a closer look revealed that this was due to an extraordinary transaction in 2013 amounting to US$6.6bil (RM21.12bil). 

Last April, Thailand’s biggest convenience store chain, CP All Pcl, acquired Siam Makro Pcl for US$6.6bil from Dutch firm SHV Holdings.

This isn’t actually a portfolio outflow. Thus, if this transaction were to be taken off, Malaysia would effectively be in last position with net outflows of US$277mil (RM886.4mil) as of June 17, according to Credit Suisse. 

“The disinterest in Malaysia is due to its high price-earnings ratio (PER) and price-to-book value (P/BV), which makes it rather uncompelling at the moment,” noted one analyst from a foreign research outfit. 

In 2013, the FTSE Bursa Malaysia KL Composite Index was trading at a PER of 18 times. For 2014, it is trading at a forward PER of some 17 times, and this is at a 20% premium to its Asian neighbours.

On a P/BV basis, Malaysia is trading at a P/BV of 2.3 times, making it the third most expensive exchange after the Indonesian and Bombay stock exchanges, which are trading at 2.46 times and 2.9 times, respectively.

The majority of the Asian markets are trading at a P/BV of below 1.5 times. 

Credit Suisse notes that over the past four months, net foreign buying in Emerging Asia, not taking into account China and Malaysia, has been at a whopping US$26.3bil (RM84.16bil), with India and Taiwan being the biggest recipients at US$9.6bil (RM30.72bil) and US$8.6bil (RM27.52bil), respectively. 

Over the last four months, net foreign buying was US$4.1bil (RM13.12bil) in Korea, US$3bil (RM9.6bil) in Indonesia and US$1bil (RM3.2bil) in the Philippines. 

“On a 12-month rolling basis, Malaysia is the least favoured market and is down by 0.9%, making it even more under-owned than Thailand which, ex the Siam Makro transaction, is down by 0.5%,” said Credit Suisse.

The net foreign buying is calculated as a percentage of market capitalisation.

“On this measure, Philippines is now 0.1%, Indonesia 0.5%, Emerging Asia ex-China 1%, India 1.1%, Korea 1.2%, Japan 1.4% and Taiwan 1.8%,” said Credit Suisse.

It added that Taiwan has now overtaken Japan as the most crowded market. 

“With net foreign buying in Japan on a rolling 12-month basis dropping from a high of 3.4% on Dec 31, 2013 to 1.4% currently, Taiwan at 1.8% has now overtaken Japan as the most crowded market for foreign investors,” said Credit Suisse.