Malaysia’s Securities Commission (SC) rules on updated list of syariah-compliant stocks may impact property stocks due to their relatively higher leverage

October 15, 2013 Leave a comment

Updated: Tuesday October 15, 2013 MYT 9:38:40 AM

New SC rules may hit property, benefit O&G

BY INTAN FARHANA ZAINUL

slimmersyariah countersb1

PETALING JAYA: Certain stocks are expected to face more price volatility than others when the Securities Commission (SC) releases on Nov 29 the updated list of syariah-compliant stocks. Analysts believed that property counters, due to their relatively higher leverage, might take a hit from the more stringent financial rules while others such as plantation as well as oil and gas stocks would have less impact and might even benefit from the move.While there would be fewer syariah-compliant stocks, analysts believed more international funds would be attracted into the country since an important aspect of the new rules was the stringent financial ratio benchmarks determining the syariah-compliant status of listed companies.

Inter-Pacific Research Sdn Bhd research head Pong Teng Siew said local funds managing Islamic and syariah-compliant funds would need to adjust their portfolios to account for the upcoming list.

He said there could be some outflow of funds for a short period of time with certain stocks seeing volatility in their stock prices while others would benefit.

However, Pong said a sharp selldown was unlikely as fund managers need to balance their portfolios by investing in other counters that comply with the new ruling.

Currently, Bursa Malaysia has 801 syariah-compliant counters with a combined market capitalisation of slightly over RM1 trillion.

Pong pointed out that the stringent new rules meant that international funds wanting to invest in local syariah-compliant stocks would no longer needed to do their own screening.

According to previous reports, the new rules were in line with conditions needed in the Dow Jones Islamic Market World Index and that SC has been in talks with companies affected by the financial stringency rules as well as the rule on companies which have or want to get into non-compliant businesses.

SC executive director for Islamic capital market Zainal Izlan Zainal Abidin expects an orderly transition for both listed companies and fund managers as the market have been notified of the matter earlier.

He said in an e-mail reply that the revised screening methodology was in line with international practice and would spur Islamic fund inflows into Malaysia.

“The move will widen the investor base for the nation’s Islamic stocks, which is line with the SC’s plan to internationalise the syariah-compliant equities and fund management industry,” Zainal Izlan added.

The good news is that funds would be given a six-month grace period after November to tailor their investment portfolios.

Meanwhile, Areca Capital Sdn Bhd chief executive officer Danny Wong said syariah-compliant funds were not big in terms of assets value compared with the conventional funds.

He said any selldown would not be severe since conventional funds were always on the lookout for good counters to invest in.

“It could be a good time to buy a good stock if the price drop significantly,” Wong added. As of Aug 31, there were 176 Islamic-based funds with net asset value (NAV) of RM38.2bil or 11.8% of the combined NAV of RM323.8bil syariah-based and conventional-based funds.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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