Thread;
Tony's "heads up" on the WSJ article yielded a very interesting read and I have copied here it as follows:
The following is reprinted here for personal use only:
Big-Cap Stocks Descend
To Analysts' Buy Levels
By DOUGLAS APPELL
Staff Reporter of THE WALL STREET JOURNAL
The shares of many big Malaysian companies have taken a beating over the past month as the relentless sell-off of index futures contracts here has dragged the stock market lower.
Many expect stocks to tumble further, but investors may want to begin accumulating heavyweights such as electricity giant Tenaga Nasional now,some analysts and fund managers contend.
The stocks of "big utilities are probably the safest haven in Malaysia at the moment," says Dominic Armstrong, the head of research with Pesaka Jardine Fleming in Kuala Lumpur.
That's partly because their prices already have factored in a lot of bad news. Renewed pessimism about the region's economic outlook has pummeled utilities and other big-capitalization stocks in recent weeks. But market participants say a big factor in the falls is heavy selling of Kuala Lumpur composite index futures contracts over the past month.
'Biggest Game in Town'
"It's been the biggest game in town," a fund manager says. Convinced that the market was ripe for a fall with the index exceeding 700 points in mid-April, investors -- including foreign hedge funds -- began selling futures steadily, keeping the price of the near-month contract 20 to 40 points below the composite index.
Normally, a futures contract trades at a premium to the underlying index, with the scale of that premium determined by the level of interest rates and the time remaining before the contract expires.
When futures fall to a big discount, arbitragers usually can lock in profits by buying futures and selling a basket of index stocks, helping to re-establish a premium. Several local investors say they would like to do just that but have yet to get the licenses needed to trade futures. With the futures at a discount, "it's natural for us to go long the futures and sell the physical scrip" but "we can't do it," says a Kuala Lumpur-based investor.
The lack of local arbitragers leaves some foreign investors leeway to
manipulate the market, some market participants contend; with recent
turnover so thin, it has been easy for them to accelerate the market's slide --and thus the decline in futures prices -- by selling stocks such as Tenaga and Telekom Malaysia, which each account for roughly 10% of the market's capitalization. Malayan Banking and Sime Darby also are on the hit list.
Short Selling
The Kuala Lumpur-based fund manager, who declined to be named, says foreign investors have been fueling the decline by aggressively borrowing those stocks from long-term investors, such as foreign pension funds that lend out their shares for a price to enhance their returns. In such so-called short selling, the foreign investors are betting on price falls, hoping to buy the stocks back later at a lower price and return them to the long-term investors.
Since April 1, these big stocks have suffered sharp falls, with Tenaga shares plunging 30%, Maybank dropping 28% and Sime Darby tumbling 22%. The composite index has dropped 19% during the same period.
It is an ironic turn of events considering the Malaysian authorities' anger late last year toward local participants who contributed to the stock market's plunge by selling stock short. Officials attacked such investors as unpatriotic and quickly prohibited local players from engaging in the practice.
But this time there has been no move by the authorities to clamp down on the futures market. Any move to clip the market's wings here would only drive the business offshore, where Singapore is aiming to offer similar contracts from late this year, some market participants say.
No Rush to Buy
Although many analysts and investors see value emerging among large-cap stocks, they expect further declines in the near future and aren't necessarily rushing out to buy. With the situation in Indonesia still highly unstable, the ringgit looking vulnerable and a host of other uncertainties, investors who have sold futures contracts short are likely to increase those positions, says a senior futures trader. It's "still going down south more," he reckons.
The big stocks "are all attractively priced at this time," but investors probably will be able to get them at 5% lower over the next few weeks, says the local fund manager. But when the market looks poised to turn, it will certainly be "those big index stocks I'll buy," he adds.
Other sectors that investors have been flocking to for shelter from the region's financial storms -- such as plantations, gaming, tobacco and alcohol -- could be under mined, argues Jardine Fleming's Mr. Armstrong. Their share prices are threatened by growing market talk that the government, starved for revenue, may try to levy taxes on these industries, he says.
Awaiting Tenaga Earnings
That has some investors looking to the battered big caps. Lai Tak Heong, research director of SocGen-Crosby Securities, says Tenaga is already worth picking up, while a further 3% to 5% price decline will make Maybank and Sime Darby shares good bets as well.
With Tenaga scheduled to release its interim earnings Friday, waiting until next week to pick up the stock may be best, another senior analyst says. Analysts expect the ringgit's slide since last year to prompt the company to announce huge losses on its heavy foreign borrowings. But if investors are confident that the ringgit will remain stronger than 4.000 to the U.S. dollar, "Tenaga is one of the most attractive power companies in the region," the analyst adds. The ringgit was trading late Tuesday at 3.82 to the dollar.
Richard Jones, managing director of ING Barings Research in Malaysia, figures Sime Darby "already looks attractive." But he doesn't expect a big rush to buy. "Everyone knows that on a two-year view" a lot of these big stocks look attractive, he says, but with the performance of so many institutional investors judged on a quarterly basis, a good number will opt to sit back until the prospects improve for a sustained rally.
|
