Government measures will help boost sentiment: MaybankIB

PETALING JAYA: Maybank Investment Bank (MaybankIB) believes that the repatriation of overseas profits and capital, as well as the reactivation of ValueCap will boost investors’ confidence on the local stock market.
MaybankIB said the move urging Malaysia companies to repatriate their overseas profits and to reinvest domestically can be “a stone that kills a few birds”.
It said that the measure will help mitigate the outflow pressures on the central bank’s external and improve dollar liquidity in the domestic foreign exchange market amid the observed supply-demand mismatch that has caused big intra-day swings and wide bid-ask spreads.
The mismatch, it noted, in large part reflects a situation where exporters are hoarding their dollar receipts while importers and residents are rushing to buy dollar as a “hedge” against further downside risk to the ringgit.
This exacerbates the claims on dollar from portfolio capital outflows due to foreign selloffs in equities and bonds.
It added that the measure will also enhance ringgit liquidity as the repatriated profits and capital will benefit from strong currency gains, which can be deployed for domestic investment in the real economy and the capital markets.
“Based on the RM522 billion Malaysia companies’ overseas investment figure quoted by Prime Minister Datuk Seri Najib Abdul Razak yesterday, we estimate that the impact of repatriation could be sizeable – every 5% translates into US$6 billion (RM25.8 billion) of potential inflows, which is about 6% of the central bank’s external reserves of US$94.7 billion as at end-Aug 2015.
“The questions at this juncture are timing (how fast can these overseas investments be liquidated/realised), and the extent (how much can be repatriated),” it said.
Meanwhile, MaybankIB said the reactivation of ValueCap with an allocation of RM20 billion could be positive in two aspects.
Firstly it said, it could help cushion further sell-down in equities by foreign investors which have net sold a sizeable RM17.3 billion as at Sept 11, 2015, in addition to the RM6.9 billion of net sell in 2014.
MaybankIB estimates that the cumulative foreign net buy in equities since early-2010 when the US quantitative easing started, has tapered to about RM9.7 billion.
Secondly, it said that the RM20 billion fund could help boost undervalued stocks which have been unjustifiably sold down.
Among its top sold-down “buy” list are AirAsia Bhd and Tenaga Nasional Bhd, while other big caps in its “buy” list are Axiata Group Bhd and Hong Leong Financial Group.
MaybankIB noted that the RM20 billion allocation is about 20% higher than the almost RM17 billion back in 2010 when ValueCap’s fund size hit a high.
“As a percentage of the total current market capitalisation of equities in Bursa Malaysia (RM1.596 trillion as at yesterday), it is about 1.2% compared with 1.0% back in 2010.
“Again, the question here is timing, but we think the allocation could be almost immediate.
“As with ValueCap’s operations back in 2003-2011, the allocations could come from its shareholders (Khazanah Nasional Bhd 1/3, Kumpulan Wang Persaraan (KWAP) 1/3, Permodalan Nasional Bhd 1/3, totalling RM5.1 billion in 2003) and Employees’ Provident Fund (RM5 billion in 2009),” it said.
While the new measures will, to a certain extent help the ringgit and provide liquidity to equities, MaybankIB warned that the issues leading to the weakened fundamentals, such as the weak commodity prices and global growth risk led by China’s slowdown, still exist.
However, it was hopeful that Budget 2016 will address some of the macro concerns especially with crude oil price at US$50-55 per barrel as well as measures to boost the income of the bottom 40% of households which will impact long-term private consumption.