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Sunday, March 23, 2008

Unit trust players capitalise on openings amid volatility

by Chong Jin Hun
(Daily Edge, 10 March 08)

KUALA LUMPUR: Unit trust players in Malaysia are capitalising on pockets of opportunities to keep their respective portfolios afloat in a volatile global investment landscape.
Anticipation of a possible recession in the US combined with soaring prices of petroleum and palm oil products are keeping fund managers vigilant to innovate and adjust their portfolios according to market dynamics.
Moreover, industry players said the Securities Commission’s (SC) latest policies for the local unit trust sector would spur growth as fund managers would have more leeway to steward their funds and mitigate risks.
“Malaysia is less volatile compared to other Asia (excluding Japan) markets. There will be more correction in other markets, hence, more value stocks abroad.
“We don’t invest for the sake of investing as we need to find value in our investments,” Pheim Unit Trusts Bhd chief executive officer Phua Lee Kerk told The Edge via telephone last Friday.
The SC, in a move to expand Malaysia’s unit trust sector, has allowed unit trust funds to increase their exposure in derivatives, and scrapped the requirement for the regulator’s consent to conduct offshore businesses.
In Malaysia, unit trust net asset value had grown from RM15.72 billion, accounting for 6.39% of market capitalisation in 1992 to RM169.41 billion or 15.32% in 2007. As at Jan 31, 2008, the figure had advanced to RM170.01 billion or 16.08% of the bourse’s market value, according to the SC.
Meanwhile, CIMB-Principal Asset Management Bhd hopes to offer more foreign-based products as well as syariah-compliant funds which are deemed sheltered from global financial markets roiled by the subprime loan crisis in the US.
“The local unit trust industry is going to be quite challenging this year,” said its chief executive Datuk Noripah Kamso.
“But where we are heading is really capturing a window... actually an Islamic window in the domestic, regional and international markets,” added Noripah, who believed emerging economies within Asean would do well this year.
OSK-UOB Unit Trust Management Bhd chief executive officer Ho Seng Yee said the firm was on a bargain-hunting mode for cheaper stocks amid a downturn in global stock markets.
“If I raise money now and invest over time, that is best because prices are very low now. Overall, the new (SC) guidelines are welcomed for the conducive growth to a more vibrant industry,” Ho said.
Acccording to the Lipper FundMarket Insight Reports, unit trust funds registered for sale in Malaysia posted a 3.99% drop in value last January, triggered mainly by poorer performance of funds investing in stocks of companies in China and Asia-Pacific.
Islamic unit trusts also declined, albeit on a smaller scale of 2.83%, cushioned by gains from funds investing in local bonds, besides stocks of companies dealing with gold and precious metals.
In 2007, Islamic unit trust funds which gained 22.84% outperformed the 21.33% achieved by the broader unit trust market, as soaring commodity prices bolstered the Kuala Lumpur Composite Index.
In comparison, unit trust funds in Singapore dipped 7.7% in January 2008, led by a poorer showing by equity funds. In 2007, the sector grew an average of 7.78%.
Meanwhile, estimates by the International Investment Funds Association showed that equity schemes accounted for the largest share or 41% of global mutual funds as at September 2007.
According to the World Bank’s Global Economic Prospects 2008 report, resilience of developing economies is cushioning the current slowdown in the US. Real gross domestic product growth for developing nations is anticipated to drop to 7.1% in 2008, while high-income countries are expected to expand 2.2%
Collectively, global growth is forecast to dip to 3.3% this year from 3.6% in 2007 as risks posed by a weakening US dollar, a possible recession in the US and financial market volatility, are anticipated to cut export income and capital inflows for developing countries, and reduce the value of their US dollar-denominated investments overseas.

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