World’s Longest Bull Market Masks Malaysia Risks: Southeast Asia – Bloomberg

The world’s longest-running equity
rally is losing steam.

Malaysia’s benchmark stock index, one of the first to begin
rebounding from the global financial crisis, is headed for its
smallest first-half return since 2008. The FTSE Bursa Malaysia
has gained just 0.8 percent this year, after rising
127 percent from its October 2008 low in the longest bull market
among nations in the MSCI All-Country World Index.

Record household debt, equity valuations that exceed the
average level of the past five market peaks and slower earnings
growth at companies from Petronas Dagangan Bhd. (PETD) to Maxis Bhd. (MAXIS)
are taking the sheen off Southeast Asia’s second-biggest stock
market. While share purchases by the nation’s 587 billion-ringgit ($182 billion) pension fund support prices, money
managers at Samsung Asset Management Co. and BlackRock Inc.
favor stocks in Thailand and China.

“Valuations are too rich” in Malaysia, Alan Richardson,
whose Samsung Asean Equity Fund outperformed 96 percent of peers
tracked by Bloomberg during the past five years, said by phone
from Hong Kong. “Growth prospects are constrained by high
household debt levels.”

Malaysia’s bull market, defined as a gain of at least 20
percent without a subsequent drop of the same magnitude from a
recent high, has lasted 2,067 calendar days, almost five times
as long as the average advance since Bloomberg began compiling
the data in 1977. That compares with 1,936 days for the Standard
& Poor’s 500 Index (SPX)
, which has climbed about 190 percent from its
March 2009 nadir.

Bull Market

The KLCI’s advance from its 2008 low is 37 percentage
points bigger than the average 19 previous bull markets. The
gauge’s price-to-book ratio of 2.3 compares with a mean level of
2 at the last five rally peaks and a multiple of 1.5 for the
MSCI Emerging Markets Index.

“If you haven’t taken a position in Malaysia, you are a
little bit late for the party,” Sam Le Cornu, who helps oversee
about $1 billion at Macquarie Investment Management and has an
underweight position in the country, said by phone from Hong
Kong on June 24. “We are not finding a lot of value.”

Rising debt levels and a planned consumption tax may
put pressure on Malaysian consumers. The country’s household
debt rose to a record 86.8 percent of gross domestic product at
the end of last year, from 57 percent in 2002, according to the
central bank’s 2013 annual report.

Debt Burden

The government introduced a goods and services tax of 6
percent, which takes effect in April 2015, to boost revenue
after running a fiscal deficit since 1998. A gauge of consumer
sentiment compiled by the Malaysian Institute of Economic
Research dropped to the lowest level since March 2009 in the
quarter ended Dec. 31.

Malaysia is the most vulnerable country in Asia to external
and financial shocks, Oxford Economics Ltd. said in a June 2
report. At 54.6 percent, the Malaysian government’s debt-to-GDP
ratio is jointly ranked with Pakistan’s as the second highest
among 13 emerging Asian markets after Sri Lanka, data compiled
by Bloomberg show.

“The Malaysian market will be sluggish,” said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill
Lynch. High debt levels will “weigh on the property market and
consumer spending.”

Malaysian stocks get support from a steady stream of
purchases by Employees Provident Fund, the nation’s biggest
state pension fund, according to Aberdeen Asset Management Sdn.

Pension Buying

The EPF said last month that investment income surged 58
percent to 8.83 billion ringgit in the first quarter from a year
earlier, driven mainly by returns from equity investments. About
43 percent of its funds were invested in equities, it said in a

“There’s a lot of liquidity in Malaysia, and with the age
profile of the country and contribution to permanent savings
schemes like the Employees Provident Fund, a chunk of these
funds finds its way into the equity market,” said Gerald Ambrose, a managing director of Aberdeen Asset in Kuala Lumpur.
“So it’s perceived as a sort of a support.”

The nation’s economic expansion has so far been resilient
to higher debt levels. GDP rose 6.2 percent in the first three
months of 2014, the fastest pace in five quarters, as a revival
in global growth boosted exports. The economy may expand
between 4.5 percent and 5.5 percent in 2014, the central bank
said in March, versus 4.7 percent last year.

Earnings Outlook

Malaysia’s earnings growth is still projected to lag behind
emerging-market peers. Profits in the KLCI index will climb 5
percent in the next 12 months, versus 21 percent for the MSCI
Emerging Markets Index, according to data compiled by Bloomberg.
The Malaysian gauge trades at 16 times estimated earnings,
versus 11 times for the developing-nation measure.

“My concern is that we are being asked to buy stocks now
at price-earnings multiples and price-to-book values
significantly higher than the levels of, say, 18 months ago,”
Ambrose said. “Yet there hasn’t been any increase in the
earnings outlook.”

Malaysian stocks were downgraded to underweight from
neutral on June 19 by JPMorgan Chase & Co., which reduced its
2014 and 2015 earnings growth forecast and said it’s less
positive on consumption-driven sectors.

IHH Healthcare Bhd. (IHH), Asia’s biggest hospital operator, is
trading at 42 times projected 12-month earnings, close to its
highest level in seven months, data compiled by Bloomberg show.
Thailand’s Bumrungrad Hospital Pcl has a multiple of 30, while
India’s Apollo Hospitals Enterprise Ltd. trades at 33.

Market Laggards

Astro Malaysia Holdings Bhd. (ASTRO), Malaysia’s largest pay-TV
operator and the best performer on the KLCI this year, has a
multiple of 29, compared with 18 for BEC World Pcl, Thailand’s
biggest publicly traded broadcaster.

For BlackRock’s Andrew Swan, this year’s advance in
developing-nation stocks, which sent the MSCI Emerging Markets
Index to a 4.3 percent gain, is another reason Malaysian shares
are losing their appeal. He says investors tend to view the
country as a “defensive” bet that holds up well in market
downturns while lagging behind in rallies.

The world’s largest money manager doesn’t have “a lot of
exposure” in Malaysia, Swan, the Hong Kong-based head of Asian
equities at BlackRock, which oversees about $4.1 trillion, said
on June 24 in Hong Kong. “When Asian markets and emerging
markets are rising, Malaysia tends to underperform, which is
what’s happening again this year.”

To contact the reporters on this story:
Choong En Han in Kuala Lumpur at;
Weiyi Lim in Singapore at

To contact the editors responsible for this story:
Michael Patterson at
Chan Tien Hin

World’s Longest Bull Market Masks Malaysia Risks: Southeast Asia – Bloomberg}

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