Socso bets on equities

THE Malaysian capital market is flush with one particular type of investor that many other markets do not have.

These are namely government linked investment companies of GLICs, which continue to pour billions of ringgit into our markets. A new player is about to get more active. The Social Security Organisation or Socso says it has developed a five-year investment strategy blueprint encompassing a review of policies, portfolio strategy and management, and strategies of all asset classes and enablers. It says it aims to achieve higher longterm expected returns of between 5% and 6% annually for the next five years until 2022.

Socso has slightly over RM25bil in assets under management and has invested up to 20% in equities, 77% in fixed income and money market instruments, and 3% in real estate. The plan is to bring the equities portion up to 28% by 2020.

Equities are increasingly volatile and as the recent reporting period showed, there has not been a major uptick in earnings from Malaysian listed companies. Fund managers are also decrying the lack of value in many of the large new listings not only in Malaysia but also in the region. But GLICs have enjoyed decent returns from owning blue chip stocks in Malaysia.

But coming into the market now may be challenging considering that many stocks already trade at full value. Sometimes, this has led to GLICs and other institutional funds to risk going into smaller sized companies. While these do provide some opportunities, we have seen how some GLICs have made some rather questionable investments into small companies which lacked sufficient track records and hence failed to deliver on their promises. It is hoped that Socso would learn from those lessons and avoid those pitfalls.

Hurricane havoc

NOTWITHSTANDING the hiccups faced by Lotte Chemical Titan Holding Bhd at its recent initial public offering in Malaysia, petrochemical and oil refining companies have generally been faring well. Lower crude oil prices tend to have a positive impact on these firms.

However, some analysts have expected a downturn in the petrochemical cycle beginning from the end of this year, That was partly due to predictions in higher crude oil prices, which in turn tend to negatively impact the margins of petrochemical companies. Meanwhile, refining companies have also been riding high on the low crude oil environment but could also see margin compressions if crude oil price rose.

But a new development is changing the dynamics. In short, Hurricane Harvey. The hurricane hitting the Texas Gulf Coast is wrecking havoc on US refining and petrochemical sectors, points out CIMB Research. It is estimated that 19% of US refining capacity is now offline or is reducing production and that about 50% of US ethylene capacity has been affected.

This, in turn, is likely to become a temporary boon for Asian refiners and petrochemical makers. CIMB Research reckons that a likely impact would be higher product prices, possibly for an extended period of time, especially for petrochemicals.

This would also be positive for Asian refining margins and petrochemical spreads in the near term. So it is likely that the runup in some of these local petrochemical and refining stocks is likely to continue, at least for the short to medium term.

The strata dilemma

AS Malaysia progresses, there is no running away from stratified developments. These include highrise residential blocks, offices and shopping centres.

In the city of Kuala Lumpur, out of a population of 1.7 million, 1.2 million live in stratified developments. Imagine the millions who work in offices. If the Klang Valley, Penang and Johor are included, the numbers are huge.

But these places need to be well-managed in order that their value be enhanced, or maintained. Other than a squeaky clean floor, security and fire hazards are real issues, as seen in London’s Grenfell Tower inferno where at least 80 were killed.

Despite the role played by property managers, they are unregulated in Malaysia, unlike in other countries.

So it was a relief for the real estate profession when the proposed amendment to enable the setting up of a registry for property managers was passed at the Senate level, or Dewan Negara, the upper house of Parliament on Aug 21.

The Valuers, Appraisers and Estate Agents (Amendment) Bill 2017 is now awaiting Royal Assent.

The board had previously opened up three separate registries, for appraisers, estate agents and valuers.

Its move to open a fourth registry to regulate and govern property managers hit various snags the last several years.

One argument was that property management was not a profession whereas proponents were of the view that properties, unprofessionally managed, would lose its value – much less have its value enhanced – over time.

This would have struck at the core of the property and construction sector.

Those opposing the move felt that property managers should not be under the board, or governed by the Valuers, Appraisers and Estate Agents Act 1981.

But valuers are also trained property managers, if they so choose to go this field and leave the more lucrative business of valuation.

This tug-of-war was precipitated by fly-by-night managers who ran away with the kitty after having set up RM2 companies to manage stratified properties, particularly condominiums.

Complaints to the police, housing ministry, Housing Developers Association and to the board were rife.

Having a registry of these managers would introduce some form of governance.

This situation is similar to the registry for estate agents, which is also under the Board.

Prior to this, all and sundry became estate agents during a boom market. They were untrained, collected deposits from buyers and ran away with the money.

Real estate covers a wide scope of professionals – valuation of land and buildings, plant and machinery, estate agency, consultancy/ research and property management, among some.

Each of these areas of expertise are interlinked and they play respective roles to further the property sector.