Ringgit
Sense
OCTOBER2011 //
&
Will
RM2.50
ever come back?
/USD
+ Nor' Azamin Salleh
How well do you know
the CEO?
INSIGHTS | MARKET REVIEW | THE GAME PLAN | PRODUCT FEATURE | FUND FACTS
CEO’STAKE
STRONG INDICATIONS
FOR ASIAN CURRENCIES
TO MOVE UP
///
Dear Valued Investors,
Not surprisingly, economic headwinds arising from the Eurozone and United States have reemerged and as usual,
gave intermittent shocks to the markets. In our opinion, investors should note that structural problems there are likely
to be protracted and will take years before any light appears at the end of the tunnel. Further radical downgrading in
sovereign ratings of European nations seems only logical to us, as the house is still in serious disorder. Sovereign
defaults cannot be completely ruled out. It is critical for the European Financial Stability Facility (EFSF) to have the
capital buffer, so that it is able to provide ample funding to the banking system that is bleeding on rising credit losses,
in order to avert a banking crisis.
While it seems calmer on the US side, the government and the Federal Reserve seems to be running out of
“ammunition” soon in fighting deflationary pressure. Recent leading economic data suggests a potential downward
spiral. While more pump priming is being planned in the US, its twin deficits i.e. budget and trade plus sovereign
debts have not stopped ballooning.
Unfortunately, while investors in Malaysia begin to buy the story of Economic Transformation Programme (ETP) and
start building faith on it, external factors to an extent are pouring cold water. Exports and industrial production will
certainly continue to take a beating, as global demand dips. However, private consumption and investment are likely
to remain reasonably firm. Foreign direct investment (FDI) appears to be gaining momentum, registering RM21.2
billion 1H11, compared to RM29.3 billion for the entire year in 2010.
All in all, we believe the current market turbulence presents an opportunity for our funds to take long term equity
positions. We expect FBMKLCI to perform better than peers on average, as seen in recent months, due to its
resilient characteristics both in terms of the real economy and stock market.
Any market cycle will have its ups and downs. In preparation to better equip Mayban Investment Management to
weather any economic scenario, an internal transformation process was started late last year and was completed
in the second quarter of this year. Areas that we’ve looked into include Investment and Research, Compliance and
Risk Management, IT and Distribution.
Operationally, we have also realigned and expanded in areas of portfolio management, research, fund performance
activities, marketing, product development activities and information system network. We have a stringent investment
process in place to ensure the best possible choices are made so that our fundamentals remain intact. In terms of
asset allocation, given the market sensitivities, we are averaging into undervalued stocks that we feel have the
potential to give us value in the long run.
Interesting changes are set to take the stage on the global economic platform and we thank our investors for placing
their confidence in us as these events unfold.
Yours sincerely,
01//
Nor’ Azamin bin Salleh
Managing Director/ Chief Executive Officer
RINGGIT&SENSEOCT2011
CONTENT
01 CEO'S TAKE
.......................................................
03 PERSONALITIES
..........................................
05 INSIGHTS
..........................................
07 MARKET REVIEW
..........................................
10 THE GAME PLAN
..........................................
11 PRODUCT FEATURE
..........................................
13 FUND FACTS
..........................................
PERSONALITIES
The October 2011 issue of Ringgit & Sense (“R&S”) features
Nor’ Azamin Salleh, the Managing Director and Chief Executive
Officer of Mayban Investment Management Sdn Bhd
(“the Company”). Mayban Investment Management is the fund
management arm of the Maybank Group.
As part of the esteemed and leading financial services provider in Malaysia - Maybank,
Azamin is responsible for propelling Mayban Investment Management’s business
and strategic direction. He brings with him years of expertise in the International,
Conventional and Shariah financial industry and also possesses a holistic background
in managing financial organisations. Under his leadership over the past one year,
the company marked its highest Asset under Management since inception
– RM23.8 billion as at 30 June 2011. Azamin’s vision for the Company
is to be amongst the top 3 leading players in the industry locally
and also regionally by 2015.
Without any further delay, let’s get to know
the man behind the scenes.
CAREER BACKGROUND
Azamin started his career in accounting at Arthur Andersen and
Co. From there he moved onto stockbroking for five years. He
made the move into asset management in 1998 and brings with
him to Mayban Investment Management 12 years of extensive
experience in asset management.
Education/Qualifications:
Certified Financial Planner (2003) – Financial Planning Association Malaysia
Licensed Fund Manager (2003) – Securities Commission
Master of Business Administration (2003) – OU Business School, United Kingdom
Certified Public Accountant (1993) – Australian Society of Certified Accountants
Chartered Accountant (1993) – Malaysian Institute of Accountants (MIA)
Bachelor of Commerce (1989) – Australian National University
03//
RINGGIT&SENSEOCT2011
R&S
In your opinion, what makes a company successful?
R&S
Who is the one person that you would like
to meet and why?
AZAMIN
A successful company revolves around its People
and Processes. People are an asset to the company. It is through
the efforts of nurturing, empowering and leading by guidance that
you craft teamwork. I practise a hands-on approach when dealing
with my team as it is the best way to understand people and
processes. My doors are always open and I strongly encourage
my team to have a two way communication with me. The power
of teamwork cannot be underestimated when it comes to
making or breaking a company. I believe in and strongly
advocate working together hand-in-hand to get the ball rolling.
People aside, the right processes in place will ensure smooth
and seamless operations in the company. In my managerial
experience over the years, it is imperative to have the proper
processes implemented within the company be it from an
operational, investment or product development perspective.
The correct processes in place enhance efficiency and lessen
the possibilities of human errors. Take for example, we’ve put
in place and practise a comprehensive investment process
framework for our team as a guide. With this, despite market
volatility, our investment fundamentals remain intact.
It’s a two-way road and one cannot do without the other.
Without the right processes, a company will be without direction
and have no boundaries to guide it. Similarly, a company
just won’t do if the right people are not around to work these
processes. I believe that with these two important components
in place, a company will be successful.
R&S
What is an achievement that you are particularly
proud of?
AZAMIN
It would be Tun Dr. Mahathir Mohamad. I greatly
admire him for his foresight and perseverance. Tun Mahathir has,
many times, stood his ground in the face of adversity even if he
has to go against the norm. Tun Mahathir is not one to shy away
from new methods and approaches, one example of which is how
he handled the 1998 financial crisis. Defying IMF directive to cut
government spending and increasing interest rates, he pegged the
Ringgit to the US dollar. As a result of his decision, Malaysia was
one of the first Southeast Asian countries to recover from the
crisis. Truly inspiring!
R&S
We’ve heard that you are an avid golfer,
why do you like the game so much?
AZAMIN
I started playing golf back in 1995 and I’ve been
playing ever since. Golf is not simply a game; it’s a test of one’s
mental wits. You have to be disciplined, determined and focused.
It’s about challenging one’s self, for example, how can I improve
my swing? It’s about self-reflection and self-improvement. My
most memorable golf moment was when I won a competition
organised by Kenanga in 1997. The prize was 2 tickets to
South Africa!
Golf has also given me the opportunity to get to know my clients
and business partners better. It’s not always about work and
being able to play a game of golf with them while catching up on
matters other than business is a welcome change.
R&S
Tell us something about yourself that
we would never have guessed.
AZAMIN
There are several highlights in my previous
attachments. I’ll just mention what’s still fresh in my mind. Setting
up and launching a DBS Asset Management entity – Asian Islamic
Investment Management (“AIIMAN”) which is the first Global
Islamic Fund Management entity in Malaysia. This is not only a
rewarding effort from an affiliation stand point but it was also a
great achievement having supported the Malaysian International
Islamic Financial Centre Scheme’s initiatives in promoting our
country as the Islamic Financial Hub on a global scale. During my
stint in AIIMAN, my team and I developed the first of its kind
Shariah product in Malaysia which was personally officiated by
the honourable Chairman of the Securities Commission Malaysia,
Tan Sri Zarinah Anwar. This signature product offered
opportunities for investors to invest directly into the lucrative China
A-Share Market. The potential for this product was enormous and
is on par with global products in the market. I would say that this
is one instance of an achievement that I am proud of.
R&S
What is the most important principle you hold
onto when it comes to your own personal investments?
AZAMIN
I am meticulous in nature even when it comes to
brewing my cup of tea in the morning (laughs). I believe in starting
the day in a right manner which will set the tone for the rest of the
day. Therefore, on a lighter note, you’d be surprised at how I bring
tea bags and milk along with me whenever I travel. It has to be the
right concoction, temperature and strength, just how I like it.
R&S
Being a family man, tell us a bit about them.
AZAMIN
My wife has been extremely wonderful and
supportive of my career; I am certainly thankful for the tireless
support through thick and thin over the years. She’s also been
a great mother to my 4 kids, 2 boys and 2 girls, especially when
I have work commitments. I believe as a parent, it is my duty to
guide my children towards the “right” path in life and over the
years, my eldest son has developed an interest in the accounting/
finance field. As he’s currently pursuing his degree in accounting
and finance in Lancaster, UK, I am glad I have rubbed off
somewhat in influencing his ambition and am definitely
supportive of it given its vast career opportunities.
AZAMIN
It has to be the “Forward Thinking” principle to stay
ahead of the game. As a "forward thinker" from an investment
perspective, it allows you to look beyond, study and plan versus
speculation and a herd mentality approach. A forward looking
approach is much more rewarding. I have adopted this as my
investment principle in most of my personal investments which
is mainly in property.
There you have it, our Managing Director/CEO
in a nutshell. Keep an eye out for this segment
as we bring you more interesting facts on the
company’s C-levels!
04//
INSIGHTS
2.50/USD
Will
RM
ever come back?
By Lee Yuen Kuen, Chief Investment Officer
of Mayban Investment Management Sdn Bhd
The global fund flow to the so-called “safe haven” US Dollar amid Eurozone sovereign
debt crisis has seen Ringgit plummeting by some 7% from recent peak of RM2.94/USD.
Clearly, fund flow is taking over from fundamental factors as the dominant driver in
determining currency movement. More downside to the Ringgit cannot be ruled out
in the short term, with the Ringgit falling 18% during the 2008 Lehman crisis at the
back of our mind. Nevertheless, we believe that in the longer term fundamental factors
will preside in navigating the course of the Ringgit. Despite the immediate term Ringgit
weakness, we remain bullish on Ringgit over the next 5 years.
We would even go to the extent of asking: Will RM2.50/USD
ever come back? This is an important and relevant question as
it affects our lifestyle as purchasing power of imported goods
and services.
Malaysians suffered great pains at the trough of RM4.54/USD
seen when the Ringgit came under speculative currency attack
and our purchasing power was literally decimated. For a period
of about eight years the Ringgit was pegged to the USD at
RM3.80/USD. Since then, the Ringgit has made great strides,
hitting RM2.94/USD recently. However, with Asian currencies in
the weakness for so long, an adaptive expectation has been
become widespread with the view that Ringgit will never revisit
the RM2.50/USD level. We beg to differ. To us, it is a matter of
time before the Ringgit revisits the RM2.50 level.
To understand this, we should look at historical facts and figures.
• The Ringgit has only been trading above RM3.00/USD for
the past 14 years.
• For some 30 years since the early 70s, the Ringgit was in fact
hovering around the RM2.50/USD level.
• In 1978, Ringgit hit the strongest level of RM2.11/USD, a level
that is unimaginable to most people now.
The key point that we should bear in mind is that during this
period, emerging markets’ economic significance was
05//
unquestionably inferior to those of advanced markets. The reverse
is happening now, supporting further the case for a strong Ringgit.
To us, the Ringgit piggy back riding on the rise of the Chinese
Yuan is a critical factor. Amid economic turbulence in the US and
Eurozone, the emerging markets are surely gaining significance in
terms of global economy and politics. Indisputably, China is at the
forefront of that. Its massive international reserves of over US$3
trillion will surely demand rising political clout in terms of global
financial power. While the USD and Euro collectively account for
the majority of foreign reserves of central banks globally, their
collective contribution to global growth has dwindled. China and
emerging economies are now in the driver’s seat in spurring global
growth. China’s clear shift in economic direction - as revealed in its
12th 5-year economic plan – with orientation moving from export
to domestic consumption should imply a potentially more rapid
pace of Yuan appreciation.
The status of the USD as a world reserve currency is rather shaky
due to concerns over economic fundamentals:
• Its longstanding twin deficit,
• High unemployment rate,
• Loss of its AAA sovereign rating by S&P’s, and
• The Fed’s obsessive money printing diluting
the value of the USD.
RINGGIT&SENSEOCT2011
While the USD as the “safest store of value” – a status USD
won over British pound in early 1900s – should still be relevant
for a while especially during global financial turmoil, we see
confidence level on the decline in the years to come. The
suggestion of using IMF Special Drawing Rights (SDRs) - a move
that would dilute the current overdependence of USD - is likely
to be a hot topic. As confidence in Yuan and currencies of
emerging nations gain momentum, these currencies including
the Ringgit are likely to strengthen further against the USD. It is
only then global imbalances can be reversed.
The troubles of the advanced markets will be protracted and
interest rates there will be suppressed to spur economic activities.
On the other hand, growth can still be found in Asian economies,
albeit moderated by global slowdown, and interest rates there will
be elevated to fight inflation. As a result, interest rate differential –
an important variable for currency movement – will widen even
further from current level and attract capital inflow into the Asian
economies for a prolonged period.
Are Malaysia’s economic fundamentals stronger now than in the
late 90s? Certainly, and this is why.
• Structural changes in Malaysia’s economic fundamentals
have come a long way since the Asian crisis.
Figure 1: RM/USD since 1970
• The strength of the Malaysian banking system is more solid
in terms of the capitalization, loan quality, structure of the sector,
risk management framework etc.
• Risk-weighted capital ratio has grown leaps and bounds.
• The banking sector is much more consolidated and structured
now compared to the 90s.
• Even the smallest banking groups now would have looked
like giants to the small players in the 90s, with healthy
balance sheets and, world-class governance and risk
management framework.
(Source: Bloomberg, Currency GPC)
Figure 2: Historical Risk-Weighted Capital Ratio and NPL
of banking system
18.0
70,000
16.0
60,000
14.0
50,000
12.0
10.0
40,000
8.0
30,000
6.0
20,000
4.0
10,000
2.0
0
0.0
1990
1992
1994
1996
1998
2000
2002
2004
2006
RWCR % (LHS)
2008
2010
A common reaction against the view of the Ringgit trading at
RM2.50/USD is the concern that export competitiveness will
completely fall apart. While the argument is valid, in our opinion
it is high time for Malaysian exporters to stop relying on a weak
currency to be competitive. And many of them will eventually get
used to a strong currency landscape, especially when forced to.
Furthermore, the Ringgit is not appreciating alone. Led by the
Chinese Yuan, all Asian currencies are likely to be moving up
in a concerted manner. As these countries are Malaysia’s main
export competitors, our competitors are not disadvantaged in
this regards.
NPL-RM’m(RHS)
In summary, there are valid fundamental justifications in our
opinion for Asian currencies including the Ringgit to move up
substantially. The rise of the Yuan, potentially as another significant
world reserve currency, should bring up Asian currencies. Amid
volatile markets with weak growth prospects, Malaysia stands out
as a low-volatility resilient country. Reasons being:
(Source: Mayban Investment Management Sdn Bhd, Bank Negara)
Figure 3: Malaysia’s current account balance and
foreign reserves
140,000
400,000
120,000
350,000
100,000
300,000
80,000
• Relatively manageable inflation as a resource-rich nation
• Private consumption and investment are robust amid the
Economic transformation Programme (ETP).
250,000
60,000
200,000
40,000
150,000
20,000
100,000
0
-20,000
Year in year out, Malaysia’s current account surplus has been
extremely strong after the Asia crisis, as shown in Figure 3. The
recent July 2011 trade surplus of RM9.5 billion was the country’s
165th consecutive month of surplus. This helps accumulate a
huge amount of foreign reserves over the years, and reinforce a
solid foundation for Ringgit.
1990
1993
1996
1999
2002
2005
2008
50,000
0
-40,000
Current Account-RM’m(LHS)
ForexReserves-RM’m(RHS)
However, this global adjustment will not happen abruptly.
Considering USD’s status of world reserve currency is over a
century long, this shift will take years. The world is struggling
to find alternatives to USD and Euro, which now dominate the
currency notes being traded. Also, as seen now, intermittent
strengthening in the USD on a “flight to safety” flow amid global
turmoil would make the journey back to RM2.50/USD bumpier.
(Source: Mayban Investment Management, Bank Negara)
06//
MARKETREVIEW
MACRO
UPDATE
In the 3Q2011, the global economy faced greater headwinds
as growth worries resurfaced due to heightened sovereign debt
problems in the advanced economies.
• The Eurozone debt crisis took centre stage as the European
Union (EU) and European Central Bank (ECB) struggled to reach
a solution on the mounting sovereign debts at peripheral
countries such as Greece, Portugal, Italy and Spain.
Growth are moderating across the globe
4Q2010
1Q2011
2Q2011
2011 IMF
Forecast
2010
US
2.3
0.4
1.0
1.5
3.0
Eurozone
2.0
2.4
1.6
1.7
1.8
China
9.8
9.7
9.5
9.5
10.3
South Korea
4.7
4.2
3.4
3.9
6.2
India
8.3
7.8
7.7
7.8
10.1
Malaysia
4.8
4.9
4.0
5.2
7.2
Indonesia
6.9
6.5
6.5
6.4
6.1
Singapore
12.0
9.3
0.9
5.3
14.5
3.8
3.2
2.6
3.5
7.8
Quarterly GDP
% Change
Thailand
• Another troubling development in August was when the
United States of America (US) barely staved off a default when
the US policy makers at the eleventh hour approved the raising
of US debt ceiling limit by USD2.1tr and automatic spending
cuts to enforce USD2.4tr in spending reductions over the next
10 years.
• Ironically in the same month, the global credit rating agency
Standard & Poors (S&P) downgraded the US sovereign rating
from AAA to AA+, the first downgrade since the country was
first rated in 1917. This caused an eventual risk off trade across
the globe as investors grew increasingly wary of potential
policy missteps which could cause massive shock to the
financial markets.
(Source: Bloomberg, IMF World Economic Outlook Sep’11)
Moderation in growth continued in both advanced economies and
emerging economies. Inflation, triggered by rising commodity
prices has probably peaked in August for many countries and are
expected to decline further in line with trends seen in the crude
oils and other major commodities. In line with the slowing global
growth, Malaysia's 2Q2011 GDP registered at 4.0%, lower than
1Q2011 GDP of 4.9% while inflation seemed to have stabilised as
CPI eased to 3.3% in August 2011 from 3.5% in June. As a result,
this led to a shift in market focus from inflation to growth.
Note: Red indicates declining trend.
On global front, July Global Organisation for
Economic Co-Operation & Development (OECD)
Composite Leading Indicator (CLI)
implies a widespread slowdown
Global OECD CLI
1.5
106
CLI Index
104
0.5
102
100
98
-0.5
96
-1.5
Sep-’09
Dec-’09
Mar-’09
Jun-’10
Sep-’10
Dec-’10
Mar-’11
OECD Total - MoM Change (RHS)
Japan
Russia
US
Euro Area
China
Source: OECD
Concern on the possibility of a global recession has also
intensified, fuelled by recent economic indicators which signalled
moderating global trade activities. Both Global Purchasing
Manager Index (PMI) and Global Leading Indicator are pointing
towards slower growth.
• Global PMI fell for its 5th consecutive month in July to 50.6 due
to slowdown in new orders and employment and Global Leading
Indicator fell for its 4th consecutive month to 102.2 in June from
102.5 in May.
Jun-’11
Indonesia
• Further adding to the mounting worries are the deepening
fiscal crisis, stagnant low growth and weak job market in the
advanced economies.
• In September, IMF revised downward global growth forecast
to 4% for 2011 and 2012.
07//
RINGGIT&SENSEOCT2011
Capital
Market
Review
Equity
Market
Review
FBM KLCI saw a sharp reversal in Aug-Sept
Worries on a potential global recession sent investors into panic
selling resulting in major sell off across various markets. The
commodity market including gold, which is deemed as a safe
haven, and emerging markets were not spared as investors
sought to lock-in profits from both the equity and bond markets,
as well as gains from the stronger currencies. Fear of a liquidity
crunch motivated a flight of capital into the most liquid instrument
still on the planet i.e. the US Treasuries.
The FBM KLCI lost approximately 12% in the 3Q2011 as the
market correction continued until end Sept 2011. However, the
KLCI fared much better than its regional peers with only 8.7%
decline for the year-to-date as compared to double-digit losses
especially amongst North Asian markets. The KLCI’s closing of
1,387 points as of 30 September is still well above the 2008
financial crisis level of 829 points.
Regional Equity Market Performance
FBM KLCI
% Gain/(Loss)
1,700
1,600
Index
1,500
30-Sep-11
1 mth
3 mths
YTD
Indonesia JCI
3,549.0
(7.6)
(8.7)
(4.2)
Philippine PSE
3,999.7
(8.0)
(6.8)
(4.8)
Singapore STI
2,675.2
(7.3)
(14.3)
(16.1)
Malaysia FBM KLCI
1,387.1
(4.2)
(12.2)
(8.7)
916.2
(14.4)
(12.0)
(11.3)
South East Asia
1,400
1,300
1,200
1,100
1,000
900
Jan-08
Jan-08
Jan-08
Jan-08
Jan-08
Jan-08
Jan-08
Jan-08
Jan-08
Jan-08
Jan-08
Jan-08
Jan-08
Jan-08
Jan-08
800
On global front, July Global Organisation for Economic Co-Operation
& Development (OECD) Composite Leading Indicator (CLI)
implies a widespread slowdown
Thailand SET
North Asia
2,359.2
(8.1)
(14.6)
(16.0)
17,592.4
(14.3)
(21.5)
(23.6)
Taiwan TAIEX
7,225.4
(6.7)
(16.5)
(19.5)
Japan Nikkei 225
8,700.3
(2.8)
(11.4)
(14.9)
South Korea KOSPI
1,769.7
(5.9)
(15.8)
(13.7)
5,502.0
(4.9)
(25.4)
(20.4)
Euro Stoxx 50
2,179.7
(5.3)
(23.5)
(22.0)
US Dow Jones
10,913.4
(6.0)
(12.1)
(5.7)
US S&P 500
1,131.4
(7.2)
(14.3)
(10.0)
US Nasdaq
2,415.4
(6.4)
(12.9)
(9.0)
UK FTSE 100
5,128.5
(4.9)
(13.7)
(13.1)
China Shanghai SE
Hong Kong Hang Seng
Malaysia FBM KLCI fared relatively better compared
to its regional peers on YTD basis
Regional Equity Index Performance as of 30 September
US & Europe
(2.0)
Germany DAX
(4.0)
(4.2)
(4.2)
(6.0)
(8.0)
(7.6)
(8.0)
(10.0)
(8.7)
(8.7)
(12.0)
(12.2)
(14.0)
(16.0)
(14.4)
(4.8)
(6.8)
(7.3)
(11.3)
(12.0)
(14.3)
(16.1)
(18.0)
Source: Bloomberg
Malaysia FBM KLCI
PhilippinePSE
IndonesiaJCI
SingaporeSTI
Thailand SET
Source: Bloomberg
08//
MARKETREVIEW
Market volatility will be a common feature in
MGS/Gll market as a result of high foreign participation
%
MGS
12
5.2
4.4
8
4.0
6
3.6
4
RM’billion
10
4.8
3.2
2
2.8
Bond
Market
Review
2.4
Apr-08
Jan-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
3 year
MGS Daily Trading Volume
Apr-10
Jul-10
Oct-10
5 year
Jan-11
Apr-11
Jul-11
10 year
20 year
Source: Bloomberg, Bondstream,
Record high foreign holdings in Ringgit debt securities
in August could have moderated in September
% of respective securities market size
80.0%
% of Foreign Holdings in Malaysia Debt Securities
(In Aggregate: RM186.0 billion as of August 2011)
70.0%
60.0%
50.0%
BNM Bills
& Notes
54.8%
Malaysian
Treasury
Bills
40.0%
29.2%
30.0%
20.0%
10.0%
26.3%
MGS &
Gll
4.5%
PDS
0.0%
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Source: Bank Negara Malaysia
PDS yield spreads tightened as a result of
higher sovereign yields
400
5 yr MGS/ 5 yr PDS Spread
The Corporate Bond market was less affected due to lower
foreign holdings and as the PDS market is dominated mainly by
the local players which are flush with liquidity. Foreign holdings
in corporate bonds accounts for only about 4.5% of the total
outstanding papers as the bonds are deemed less liquid vis a vis
MGS/GII. As a result of the reversal in the MGS yields, the PDS
spread tightened, but remain attractive due to its relatively better
yield pick-up.
1200
350
1000
300
800
250
200
600
150
400
RM’billion
bps
During the 2Q2011, the Ringgit sovereign bonds attracted large
foreign flows for a number of months which caused MGS yield
to drop further. This extended into Jul-Aug 2011 which saw daily
trading volume surged to record high of RM10 billion from the
average daily trade of RM3-5 billion. Following the raising of the
US debt ceiling in August, foreign funds shunned the US Dollar
and shifted into Emerging Markets (EM). The trend reversed in
early September due to heightened concerns on the Eurozone
debt crisis which triggered a flight to safety into US Treasuries.
This resulted in a stronger US Dollar vis-à-vis most emerging
market currencies.
100
200
50
0
0
Aug-08
Nov-08
Feb-09
May-09
Aug-09
Aug-09
Nov-09
Feb-10
May-10
Aug-10
Nov-11
Feb-11
May-11
Daily Trading Volume
PDS 5yr AAA/MGS 5yr spread
PDS 5yr AA1/MGS 5yr spread
PDS 5yr A1/MGS 5yr spread
Aug-11
Source: Bloomberg, Bondstream,
Outlook
In view of the continued uncertainties in the developed economies,
it is conceivable that capital flows will still shun risky assets in the
near term as foreign investors’ lock-in position in profitable assets
and seek safe haven in the US Dollar. This may extend up to the
end of 2011 depending on how the external macro environment
especially the situation in Eurozone pans out. Over the longer
term however, we remain positive on emerging markets due to
its relative strong fundamentals, backed by resilient domestic
demand and increasing intra-regional trade.
The domestic economy however is expected to remain resilient
on the back of positive economic policies and accommodative
interest rate environment. The key catalyst could be the annual
budget announcement which should include incentives to promote
domestic spending. In addition, we expect BNM to maintain the
current interest rate level at the next Monetary Policy Committee
Meeting scheduled in November 2011.
09//
On equities, the market correction has led to several key blue
chips declining to levels that are comparable to the post-Lehman
collapse. We continue to see rotational selling on relatively more
expensively valued stocks. Selectively, this offers opportunity
to progressively accumulate positions on battered blue-chips
but reserving bulk of ammunition to take advantage of any
potential capitulation.
For the bond market, market volatility will be common sight due
to high foreign participation in MGS/GII market, which stood at
26% of the outstanding MGS/GII, or RM100 billion as of August
2011. As for our strategy, we continue to favour corporate bond
over MGS/GII due to its better yield pickup and the expectation
of new issuances coming into the market stemming from various
capital expansions activities undertaken by companies such as
Tenaga Nasional Berhad and PETRONAS as well as financing
requirement on projects such as MRT lines and LRT extension.
RINGGIT&SENSEOCT2011
THEGAMEPLAN
Equities (Mild Overweight)
Fixed Income Securities (Neutral)
MAINTAIN
MAINTAIN
• At the current juncture, we are holding a mild overweight
equity position i.e. within the overweight equity exposure
range; we are at the lower end.
• Although we have been focused on high-quality PDS
for months now, we maintain this stance owing to
the low yield of government papers.
• Apart from holding onto our cash position, we have
also positioned to hold more defensive stocks with
lower downside.
• For the same reason, we have a reasonably short
duration position to stay invested for our bond
portfolios, with plans to buy more whenever yield
pick-up opportunities arise.
• While external risks are overwhelmingly large with a
significant amount of volatility, we are generally
positive on domestic factors in the coming months.
• We continue to actively bid for new issuances and
search for trading opportunities.
• We take great comfort in low level of foreign
shareholding of 21-22%, which is at the lower end
of historical levels.
• As growth concerns are taking over inflationary
pressures in determining interest rate policy, we feel
the overnight policy rate (OPR) will stay stable at
current levels until mid-2012.
• As we believe the local funds are generally holding on
to sizeable cash levels waiting to take positions,
FBMKLCI is likely to perform better relative to peers
in the region and global markets.
Money Market (Neutral)
MAINTAIN
• Once external headwinds subside, we expect positive
domestic factors to drive our local market up.
• Hence, our strategy is to take positions at appropriate
levels and to build up equity positions.
• Due to the lower position within our overweight
equity exposure range, we shift cash into
money market funds.
• With bond yields especially Malaysian government
securities (MGS) trading at very low levels and with
the current uncertain stock market, money market
is where funds are moving to.
SELL
M A INTA IN
B UY
• Amid the flush liquidity in the banking system,
yields of Commercial Papers (CPs) and short term
bonds are also depressed.
10//
PRODUCTFEATURE
Given the current global uncertainties,
how should investors manage their
investment portfolio?
It is expected that the global markets will remain volatile in the
near term. Investor confidence is still shaken as discouraging
data continues to flow in from developed economies. As a result,
investors are likely to shirk away from risky assets and seek safe
haven in the US Dollar. How long this situation remains will
depend on how well the Eurozone handles things on their end.
In this aspect, international and geographical diversification
would be favourable due to less dependence and concentration
in one country. If you have invested locally, we opine that it’s a
safer alternative as compared to our regional peers and other
major economies.
Why do you regard Malaysia as a safer
investment haven?
Poor data from the advanced economies suggesting weak
demand will be likely to adversely hit an economy like Malaysia.
Apart from having an export-dependent open economy, it also has
United States and Eurozone as important trading partners. With
exports contributing to over 100% GDP, Malaysia’s economy is
certainly not insulated from these external risks. Nevertheless, as
evidenced by their ability to lead global recovery in the past three
years, emerging economies appear much stronger and more
resilient to face the weaker global economy.
We expect the impact on Malaysia’s real economy to be reasonably cushioned. The contribution of domestic consumption –
boosted by a high saving rate, relatively low inflation and favourable demographic - to Malaysia’s GDP is one of the strongest in
the region. Malaysia’s resource-rich economy also makes it a
beneficiary of high commodity prices, especially in terms of
household income and private consumption. The propensity to
consume has set a rising momentum and this helps to offset the
weaker export in driving economic growth.
1. The Economic Transformation Programme’s (ETP) initiatives
to boost private investment are gaining traction lately amongst
both local and foreign investors. As with other emerging
economies, Malaysia is attracting strong inflow of foreign direct
investments (FDI), which surged to RM11.1b in 1Q11 – already
a third of the full year forecast. For a change since many years
back, foreign investors, either direct or indirect (i.e. portfolio
managers), are beginning to pay attention to Malaysia and
are seriously considering investing here.
2. Malaysia is also less dependent on electrical and electronic
(E&E) exports now. E&E and commodities accounted for
58% and 17% of total exports respectively in 1996. E&E’s
contribution has since fallen sharply to 38% while contribution
by commodities has surged to 32% in recent months. Another
mitigating factor is the lower reliance on the US as an export
destination and the significant growth in intra-Asian trades in the
past few years - a trend we think is likely to sustain. Malaysia's
exports to China and Asean countries leapt by 150% and 34%
respectively during the five years up to end-2010 while exports
to the US contracted by 30%.
11//
3. Amid global uncertainties, foreign funds from advanced markets
in search of safety have been flowing into the Ringgit assets,
particularly Malaysian sovereign bonds. While there could be
some weakness in the Ringgit amid global economic
uncertainties in the short term, we believe the Ringgit is likely
to see more upside in the longer term. Many are concerned
that strengthening the Ringgit will weaken our export
competitiveness. However, regional currencies such as
Singapore Dollar, Indonesian Rupiah, South Korean Won and
China Yuan are also appreciating - some at an even faster pace.
Many of these are in the same boat as the Ringgit i.e. being
competing currencies to our exports, and hence, the concern
on a weaker Ringgit competitiveness is alleviated.
Therefore, as seen many times before in the past, Malaysia is
relatively resilient in a global economic downturn. In addition,
the recent 2012 Budget has announced a RM 6 billion special
stimulus package to strengthen the economy by ways of attracting
investments and boosting the Islamic sukuk market, banking,
finance and hospitality industries, as well as support for small
and medium enterprises. From a fund manager’s perspective,
we opine that these 3 initiatives announced in the 2012 Budget
will boost the local fund management industry:
• SUKUK – The government has given tax exemptions of
expenses incurred for a period of three years while income tax
exemption given for non-ringgit sukuk issuance is also three
years. This provides incentives to issuers, both local and
foreign, to issue Sukuks in Malaysia effectively facilitating the
growth of Islamic products here.
• PRIVATE RETIREMENT SCHEME – A tax relief of up to
RM6,000 for EPF and life insurance has been extended to the
Private Pension Fund now known as the Private Retirement
Scheme. This will offer another growth engine for fund
management and insurance companies. Fund managers will
also have the opportunity to grow the industry by providing
retirement savings solutions that suits employees better.
What is a suitable investment vehicle in
times of uncertainties?
A majority of investors remain cautious and risk adverse in such
volatile markets. On the other end of the spectrum, investors who
are “capital rich” will be on an active lookout for good bargains
during low market sentiments. In our view, investors should
consider investment solutions which could potentially endure
market volatilities. In our latest offering, the Q-Series of Funds
(“Q-Series”) which focuses on local investments aims to provide
investors with an “all weather” investment solution. The Q-Series
allows investors to construct their own investment portfolio based
on individual goals, time horizon and risk appetite. The Q-Series
utilizes the Asset Allocation Strategy to enable investors to achieve
their investment goals.
- Series Highlights
1. Fund Manager’s
Capabilities
Q-Opportunities Fund (“Q-OPP”)
RINGGIT&SENSEOCT2011
2. Asset Allocation
Strategy
FUND TYPE/CATEGORY: Capital Growth/Equity
INVESTMENT OBJECTIVE: Q-OPP is an equity fund that aims to:
• Provide Unit Holders with above Benchmark (FBM Top100) equity returns
via a diversified portfolio; and
• Provide Unit Holders with a capital appreciation over the Long Term.
ASSET ALLOCATION
Limits
Investment Options
Minimum of 70% and
maximum of 95% of
the Fund’s NAV
• Equities traded in or under the rules of an Eligible Market; and
• Warrants that carry the right in respect of a security traded in or under
the rules of an Eligible Market.
Minimum of 5% and
maximum of 30% of
the Fund’s NAV
• Fixed deposits; and
• Money market instruments i.e. treasury bills, Bank Negara Malaysia bills,
Bank Negara Malaysia negotiable notes, bankers acceptance, NID,
repurchase agreements and CPs.
Q-INC of the Fund is a pure income fund which aims to provide investors with a regular income stream
over the medium to long term.
Q-Income Fund (“Q-INC”)
FUND TYPE/CATEGORY: Income/Fixed Income
INVESTMENT OBJECTIVE: Q-INC is a fixed income fund that aims to:
• Provide Unit Holders with above Benchmark (12-months Maybank Fixed Deposits)
returns via a diversified portfolio of fixed income securities;
• Distribute income to the Unit Holders periodically (at least semi-annual); and
• Preserve capital* over the Medium to Long Term.
Note*: The Manager shall aim to preserve the capital of Investors. Nonetheless, the fund is not a capital guaranteed fund or a capital protected fund.
ASSET ALLOCATION
Limits
Investment Options
Minimum of 70% and
maximum of 95% of
the Fund’s NAV
• RM-denominated fixed income securities.
Minimum of 5% and
maximum of 30% of
the Fund’s NAV
• Fixed deposits; and
• Money market instruments i.e. treasury bills, Bank Negara Malaysia bills,
Bank Negara Malaysia negotiable notes, bankers acceptance, NID,
repurchase agreements and CPs.
Q-TAR or the Fund is a mixed asset fund which aims to provide investors with capital appreciation with
a targeted return of six (6) per cent per annum. The strategy used for Q-TAR is an active target return
strategy which will help to eliminate the variability of the market from the returns.
Q-Target Return Fund (“Q-TAR”)
3. Sound Underlying
Investments
Q-OPP is predominantly an equity fund which endeavours to provide investors with capital appreciation
over the medium to long term. The fund will invest in Malaysian equities selected by the fund manager
based on strong upside potential.
FUND TYPE/CATEGORY: Growth/Mixed Assets
INVESTMENT OBJECTIVE: Q-INC is a mixed assets fund that aims to:
• Provide Unit Holders with returns above Benchmark via a diversified portfolio of equity,
fixed income securities and money market instruments; and
• Provide Unit Holders with capital appreciation over the Medium Term to Long Term.
Note: The Benchmark for the fund is a return of 6% per annum. Nonetheless, the return of 6% is not, at any time, a guaranteed return of the Fund.
ASSET ALLOCATION
Limits
Investment Options
Minimum of 10% and a
maximum of 75% of the
Fund’s NAV
• Equities; and
• Other equity-related instruments such as Convertible Binds & Hybrids
Securities, Warrants, Transferable Subscription Rights and Options.
Minimum of 20% and
maximum of 85% of the
Fund’s NAV
• RM-denominated fixed income securities.
Minimum of 5% and a
maximum of 70% of the
Fund’s NAV
• Fixed deposits; and
• Money market instruments i.e. treasury bills, Bank Negara Malaysia bills,
Bank Negara Malaysia negotiable notes, bankers acceptance, NID,
repurchase agreements and CPs.
12//
RINGGIT&SENSEOCT2011
DISCLAIMER
General:
This newsletter is for information purposes only and under no circumstances it is to be considered or intended as an
offer to sell or a solicitation of an offer to buy any securities referred to herein. Investors should seek financial advice
regarding the appropriateness of investing in any securities or investment strategies discussed or opined in this
newsletter. Investors should note that income from such securities, if any, may fluctuate and that each security’s price
or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not
necessarily a guide to future performance.
The information contained herein has been obtained from sources believed to be reliable but some sources may not be
independently verified and consequently no representation is made as to the accuracy or completeness of this newsletter
by Mayban Investment Management Sdn Bhd and it should not be relied upon as such. Mayban Investment Management
Sdn Bhd and/or its directors and employees may have interests in the securities referred to/mentioned herein. Any
opinions or recommendations contained herein are subject to change at any time.
Investors should also understand that statements regarding future prospects may not be realized. This newsletter may
include forecasts, which are based on assumptions that are subject to uncertainties and contingencies. The word
“anticipates”, “believe”, “intends”, “plans”, “expects”, “forecasts”, “predicts” and similar expressions are intended to
identify such forecasts. Mayban Investment Management Sdn Bhd is of the opinion that, barring any unforeseen
circumstances, the expectations reflected in such forward-looking statements are reasonable at this point of time.
There can be no assurance that such expectations will prove to be correct. Any deviation from the expectations may
have adverse effect on the financial and business performance of companies contained in this newsletter.
Mayban Investment Management Sdn Bhd accepts no liability for any direct, indirect or consequential loss arising
from use of this newsletter.
Some common terms abbreviated in this newsletter (where they appear):
adex
= Advertising expenditure
NAV
= Net asset value
BV
= Book value
NTA
= Net tangible asset
CY
= Calendar year
P
= Price
capex
= Capital expenditure
PE/PER = Price ear nings/PE ratio
CAGR
= Compounded annual growth rate
PEG
= PE ratio to growth
DPS
= Dividend per share
p.a
= Per annum
DCF
= Discounted cash flow
PBT/PAT = Profit before tax/Profit after tax
EV
= Enterprise value
q-o-q
= Quarter-on-quarter
EBIT
= Ear nings before interest, tax
ROE
= Retur n on equity
EBITDA = EBIT, depreciation and amortisation
ROA
= Retur n on asset
EPS
ROS
= Retur n on shareholder’s funds
= Ear nings per share
FY/FYE = Financial year/Financial year end
WACC
= Weighted average cost of capital
FCF
= Free cash flow
y-o-y
= Year-on-year
FV
= Fair value
ytd
= Year to date
m-o-m
= Month-on-month
This review prepared by Mayban Investment Management Sdn Bhd (MIMSB) is for the private circulation to clients of MIMSB only. The opinions, statements and
information contained in this review are based on available data believed to be reliable. MIMSB does not warrant the accuracy of anything stated in the review
in any manner whatsoever and nor any reliance upon such things by anyone shall give rise to any claim whatsoever against MIMSB in respect thereof.
25//
Chief Executive Officer
Chief Commercial Officer
Acting Head of Investment Research
Nor’ Azamin bin Salleh
Ahmad Rizlan Azman
Asrina Baizura Mor ni
General: 03-22977888
Direct: 03-22977800
Direct: 03-22977917
Mayban Investment Management Sdn. Bhd. (421779-M)
(A member of Maybank Group)
Level 13, Tower C, Dataran Maybank, No. 1, Jalan Maarof, 59000 Kuala Lumpur, Malaysia
Tel: 603-2297 7888 Fax: 603-2297 7880