Not sated by local markets, funds and GLCs scour abroad for growth

PETALING JAYA, July 2 ― With Prime Minister Datuk Seri Najib Razak set to officiate its launch in London this Thursday, the Battersea project in the UK is fast becoming a high-profile symbol of the financial clout of Malaysian funds abroad.

But behind the glitz and glamour of the event is an underlying concern that Malaysia’s limited stocks and bonds markets are leading the Employees Provident Fund (EPF) and other government-linked conglomerates to hunt abroad for growth at a time when foreign funds are slowing down their investments in growing markets.

Already, the EPF and GLCs such as Sime Darby ― the largest backer of the Battersea project ― have shot Malaysia to second place in London’s lucrative property sector, according to a report by the Financial Times yesterday.

“These guys have some of the biggest cheque books in Asia,” Steve Clayton, senior country officer for JPMorgan in Malaysia, was quoted as saying by the Financial Times.

“They are in the early stages of searching for and making large cross-border investments. But, as they find more and execute more, their global influence will undoubtedly increase.”

But the growing interest of the EPF, along with other funds such as Permodalan Nasional Berhad (PNB) and Tabung Haji ― the mainstays of the local markets ―may come at an inopportune time for local markets.

According to the local Shares Investment website last week, foreign investors cut their holdings in the FTSE Bursa Malaysia Kuala Lumpur Composite Index for a third week in a row, with outflows totalling RM1.68 billion or over three times the RM523.9 million from a week earlier.

It added that this was the single largest weekly loss since the 2008 global banking crisis.

According to the Financial Times yesterday, an EPF spokesman said the fund aimed to have 23 per cent of its portfolio invested overseas by 2014/15, up from 18 per cent now.

This follows a recent divestment of local shares by fund in May, during a surge in the Bursa Malaysia after the results of Election 2013, which saw it cut its stake in 20 of 30 stocks on the bourse.

The EPF and its public sector equivalent, Kumpulan Wang Persaraan (KWAP), began venturing into UK property in 2010, acquiring an office building as part of plans to invest up to £1 billion (RM4.8 billion) in the British property market, according to the Reuters news agency.

A year later, the EPF expanded its foray by taking out a five-year £300 million loan ― its first offshore loan ― to fund the acquisition of three London-based properties.

It holds 20 per cent of the Battersea project, with Sime Darby and SP Setia owning the remainder.

The EPF handles around RM176 billion generated from the mandatory retirement savings of Malaysian private workers.

The KLCI has risen by 7 per cent since the start of the year, while government-backed securities rose an average of 0.3 per cent in May.

Last month, Najib sought to court foreign and local investors to put their money into Malaysia, touting his Economic Transformation Programme (ETP) in a bid to generate the growth needed to propel Malaysia towards developed nation status by 2020.

In 2011, the prime minister had also asked for local investors to keep their funds within the country in order to overcome domestic direct investment (DDI) shortfalls.