KUALA LUMPUR: With the sharp rise in share prices of big-cap companies on Bursa Malaysia and the benchmark FBM KLCI nearing the 1,500-point mark, government-linked investment funds appear to be paring down their stakes and taking profit on their equity investments.
Some investment analysts observed that government funds were rejigging their portfolios and broadening their net to other stocks besides the big-caps, which had performed well in recent months.
According to statistics from Bursa Malaysia, a number of government investment funds including the Employees Provident Fund (EPF), Lembaga Angkatan Tentera (LTAT), Kumpulan Wang Persaraan (KWAP) and Skim Amanah Saham Bumiputera have been trimming their shareholding in various equities (see table below).
Analysts cited profit taking as one of the main reasons for the divestments.
“We believe that a number of local institutions had been taking profit on the market as it rallied from its low in May. Some of this selling could be related to having to pay dividends based on a June 30 close, or linked to efforts by local institutions to diversify their portfolio outside Malaysia,” said OSK Research head Chris Eng.
“The government funds have been taking advantage of the upturn in the market to lock in their gains. It is a normal pattern for these government funds to take profit and reinvest at a later date when the market is more stable,” he added.
As at end-June, the EPF’s largest stake was in Malaysia Building Society Bhd, with 67.33%, according to its website, while its second-largest holding was in RHB Capital Bhd.
The provident fund had made known that it wanted to reduce its stake in RHB Cap to some 40% over the next year. According to the latest filings with Bursa, the EPF now holds 54.52% in RHB Cap, down slightly from 54.93% at end-June.
In the case of the EPF, according to analysts, the trimming of its holdings in Malaysian equities is part of its plan to diversify its holdings overseas.
“Although the recent selling is due to profit taking, the EPF has also announced that it intends to increase its level of overseas investments, possibly investing in property,” said an analyst.
Other funds have been trading actively on the market in an effort to tweak their collective portfolios.
“An example is Permodalan Nasional Bhd, which has also been actively trading in the stocks in its portfolio, selling and buying at opportune times,” said a local trader.
LTAT, meanwhile, has also trimmed its stakes in smaller companies like Hiap Teck Venture Bhd and Pelangi Publishing Group Bhd. It has ceased to be a substantial shareholder of the latter, according to latest filings.
Among the companies that saw government funds trimming their holdings are government-linked companies (GLCs) such as Axiata Group Bhd and Malayan Banking Bhd. Other stocks that the funds have been selling include Kinsteel Bhd, DiGi.Com Bhd, KPJ Healthcare Bhd and Kencana Petroleum Bhd.
Going forward, analysts expect the profit taking to continue although there will also be some reinvesting once the market stabilises, which is expected in the coming months.
“Although the government funds will continue to invest in GLCs, it can be seen that they are broadening their net and are looking at the broader market as well,” said an analyst.
This is in line with OSK’s October strategy report which recommends a switch to laggard small-cap companies, stating that defensive companies like KPJ and QL Resources Bhd would prove ideal picks.
Its top picks among the GLCs include Petronas Gas Bhd and MISC Bhd, although the caveat for both stocks is their low level of liquidity, according to analysts.
This article appeared in The Edge Financial Daily, October 6, 2010.
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