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Nikkei Markets

Malaysia's KWAP raising share of equities in asset mix

Bets on technology plays as Sino-US trade war potentially raises export prospect

Kumpulan Wang Persaraan is a substantial shareholder in some of Malaysia’s largest listed companies.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's Kumpulan Wang Persaraan is raising the share of equities in its investment mix as the state-run fund bets on potential boost to domestic technology plays from the ongoing Sino-U.S. tariff tussle.

The money manager, commonly known as KWAP, which manages about $36 billion in assets of civil servants' retirement benefits, has expanded its equities mix in the total assets to 42.5% from 40% ahead of the May 9 national elections.

KWAP, which was "overweight on cash" prior to the general election is now drawing from the pile to buy shares that have turned attractive following a recent downturn in the broader market , Chief Executive Wan Kamaruzaman Wan Ahmad told reporters.

KWAP is a substantial shareholder in some of Malaysia's largest listed companies, including utility firm Tenaga Nasional as well as top two banks - Malayan Banking (Maybank) and CIMB Group Holdings. KWAP has also invested in semiconductor firm Pentamaster and U.S. ride-hailing firm Uber Technologies.

It allots most of its assets to fixed income instruments, followed by equities and the remainder to alternative assets such as private equity and real estate. Bulk of its investments are in Malaysia and international assets accounted for 13% of its portfolio.

Malaysia's stock market has turned jittery dragged by a sustained sell-off by foreigner funds, following a shock victory for the Mahathir Mohamad-led opposition Coalition of Hope that has hurled investors into uncertainty over policy direction.

Foreigners have sold 10.64 billion ringgit ($2.63 billion) worth of Malaysian shares since the May 9 polls until Monday, stock exchange data show. The sum exceeds the total 10.3 billion ringgit of foreign inflows through the whole of 2017. The selloff has erased Malaysia's benchmark KLCI's gains, dragging it down 3.3% year-to-date.

Since sweeping to power, Mahathir has scrapped the goods and services tax - a highly unpopular levy but a strong government revenue source - and reintroduced fuel subsidy to follow through his pre-poll pledges to ease the voters' cost of living.

Although the government expects such moves coupled with cost cuts will spur consumption, which in turn will boost domestic demand and economic growth, investors remain wary of the new administration's ability to meet this year's fiscal deficit target following its populist steps.

"We are always on our toes looking at how it can impact the (investee) companies," Chief Investment Officer Nik Amlizan Mohamad said.

However, the ongoing trade spat between the U.S. and China is likely to benefit Malaysian technology plays if the U.S. bars Chinese technology companies, Nik Amlizan said.

"Malaysia would be one of the beneficiaries of the trade war because the cost of certain products from China going into the U.S. would rise substantially," Nik Amlizan said. "The demand (for products) would find sources elsewhere...amongst which Malaysian electronic manufacturing companies would definitely benefit."

Electrical and electronics items make up more-than a third of Malaysia's merchandise exports.

"So we are actually positioning ourselves in those specific companies," Nik Amlizan added.

The Bursa Malaysia Technology Index has risen 27% from a one-year low hit in early April, shortly after U.S. President Donald Trump first threatened to levy tariffs on Chinese imports.

Analysts expect KWAP's renewed thrust in Malaysian equities could help propel the benchmark KLCI higher.

"This could help drive up the index, as the state-run funds will definitely continue to invest in big-cap stocks...in banks, telco and plantation and select oil-and-gas stocks," said Vincent Lau, vice-president at broker Rakuten Trade.

There's potential for a spill over to small-and-mid caps as well, which will drive up more interest from retailers, he added.

--Alexander Winifred

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