Govt-linked funds selling shares, locking in gains

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.

Islamic Unit Trust in Malaysia - An Introduction

First launched in the UK in 1931 by M&G, unit trusts are a form of investment by companies or individual who pool their money to make large-scale investments in selected portfolio of securities. Within Malaysia, unit trust started with the formation of Malayan Unit Trust Ltd. in 1959. Government agencies started formulating regulations during the early years but it was in the 80s that the industry started to bloom. The setting up of Amanah Saham Nasional (ASN) by Permodalan Nasional Berhad (PNB) in 1981 drew overwhelming response. With an ingenious distribution channel, unit trusts nowadays are reaching the investing public even more. Post 1997-Asian financial crisis saw the emergence of Islamic funds as the popular type of unit trust issued by providers. Securities Commission regulates the Malaysian unit trust industry and it defines the Islamic capital market as “the market where the activities are carried out in ways that do not conflict with the conscience of Muslims and the religion of Islam.” In other words, the ICM represents an assertion of religious law in the capital market transactions where the market should be free from the involvement of prohibited activities by Islam as well as free from the elements such as usury (riba), gambling (maisir) and ambiguity (gharar), added the SC website. To better strengthen this new banking reality, the Securities Commission established a Syariah Advisory Council (SAC) in 1996, to advice on all matters pertaining to Islamic Capital Market, including that of unit trust. The eight members of the Syariah Council would naturally be best there is in Syariah – both knowledgeable and experienced as well as having a sound Islamic economics and finance background. The Chairman, Syariah Chief Justice Datuk Sheikh Ghazali Hj Abdul Rahman resides over seven other representatives from UIA, UKM, a Mufti, an Islamic bank’s securities director, a Human Rights Commissioner, and one each from Angkasa and a private company. To advise on all matters within the Islamic Unit Trust industry, SC has appointed a total 26 syariah individual advisers and 4 syariah corporate advisers, all distinguished scholars related to the industry. Broken into four main categories to reflect its investment emphasis, Islamic Unit Trust in Malaysia is made up of Equity Funds (40 funds), Balanced Funds (17), Bond Funds (15) and Other Funds (5). An equity unit trust is the most common type of unit trust where a major portion of its assets are held in equities or securities of listed companies in the Malaysian stock market, which is the largest equity market in South East Asia. The performance of the units is therefore linked to the performance of the market. A rising market will normally give rise to an increase in the value of the unit and vice-versa. In Islamic unit trusts, funds can only be invested in “halal” stocks that are not only involved in the Haram business like gambling, alcoholic beverages and the production of non-Halal products, but also exclude shares of companies that are involved in conventional banking, insurance or financial services. The returns of the Islamic Unit Trust will also avoid the incidence of 'riba' or usury interest through the process of cleansing or purification by the removal of such amounts representing the interest element. Such proceeds are normally donated to charities. As of September 2005, there are 36 unit trust management companies managing 331 approved funds in the overall unit trust industry that circulates some 99.6 billion units in the hands of 10.7 million unitholders. With the active role played by governing body the Securities Commission and the commitment showed by Malaysia’s Central Bank, the Islamic Unit Trust market has indeed played a complementary role to the Islamic banking system in broadening and deepening the Islamic financial markets in Malaysia.