By Yow Hong Chieh
The Malaysian Insider
January 20, 2011

KUALA LUMPUR, Jan 20 — Global investors are continuing to avoid Malaysia as fund managers trim investments in emerging markets over concerns that China’s economy will slow this year.

Bank of America Merrill Lynch said in a note this week that Malaysia remained a “big underweight” for investors in emerging markets, with its underweight rating increasing from 46 per cent in December to 55 per cent in the first month of 2011.

An underweight call is a recommendation for investors to reduce their investments in a particular security, asset class or, in this case, country.

Malaysia slipped from 14th place in December to dead last this month among the 15 countries studied by the investment bank, despite the roll out of big ticket Economic Transformation Programme (ETP) projects and speculation that snap polls will be held later this year.

Topping the list was strongly overweight Russia, followed by Thailand, Brazil, Turkey, South Korea, China, Indonesia and Mexico. Other emerging market underweights were Poland, Taiwan, Colombia, India, South Africa and Chile.

Malaysia’s underweight call also comes at a time when fewer investors are looking to increase investments in emerging markets due to worries that China’s “eroding” economy will have a knock-on effect on the market in Asia.

In its January 2011 Fund Manager Survey, Merrill Lynch said while support for emerging markets remained high, the number of investors overweight on such markets was continuing to decline.

The investment bank reported only 43 per cent of fund managers surveyed said they were overweight on emerging markets, down from 56 per cent two months ago.

The proportion of investors wanting to increase investments in emerging market equities more than any other region similarly fell from 31 per cent in December to 20 per cent.

“These lower readings come as belief in China’s economic prospects has eroded,” Merrill Lynch said in a press statement yesterday.

A Reuters poll released yesterday showed that economists expect China’s economy to expand by 9.3 per cent this year, throttling back from double-digit growth in 2010.

Inflation in China was also tipped to quicken to 4.3 per cent, a “much faster build-up” of price pressures than predicted.

“Later this year, Asian policymakers are going to have to be much more aggressive to get inflation under control and the consequence of that will be weaker growth,” Nomura Chief Economist Asia Robert Subbaraman told Reuters.

“For Asia, the challenging part is how to deal with inflation at the time when there is still capital inflows to the region. The risk in Asia is policy is either too slow to respond or the micro — or piecemeal —measures that have been introduced… are going to lose their effectiveness overtime.”

Investors have so far greeted Prime Minister Datuk Seri Najib Razak’s New Economic Model (NEM) with disinterest, owing to lack of detailed policies, timelines and the apparent rollback of ambitious Bumiputera quota reforms detailed in the first half of last year.

The bold recommendations set out in the first part of the NEM to boost competitiveness by reducing quotas appear to have been sidelined in the second part launched last month.

Observers attribute this to stiff resistance from Malay rights groups concerned that such moves will erode the community’s interests.

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Investor concern of cool-off in China has weighed on other emerging markets. — Reuters picKUALA LUMPUR, Jan 20 — Global investors are continuing to avoid Malaysia as fund managers trim investments in emerging markets over concerns that China’s economy will slow this year.

Bank of America Merrill Lynch said in a note this week that Malaysia remained a “big underweight” for investors in emerging markets, with its underweight rating increasing from 46 per cent in December to 55 per cent in the first month of 2011.

An underweight call is a recommendation for investors to reduce their investments in a particular security, asset class or, in this case, country.

Malaysia slipped from 14th place in December to dead last this month among the 15 countries studied by the investment bank, despite the roll out of big ticket Economic Transformation Programme (ETP) projects and speculation that snap polls will be held later this year.

Topping the list was strongly overweight Russia, followed by Thailand, Brazil, Turkey, South Korea, China, Indonesia and Mexico. Other emerging market underweights were Poland, Taiwan, Colombia, India, South Africa and Chile.

Malaysia’s underweight call also comes at a time when fewer investors are looking to increase investments in emerging markets due to worries that China’s “eroding” economy will have a knock-on effect on the market in Asia.

Najib’s NEM has been hampered by a scarcity of details. — file picIn its January 2011 Fund Manager Survey, Merrill Lynch said while support for emerging markets remained high, the number of investors overweight on such markets was continuing to decline.

The investment bank reported only 43 per cent of fund managers surveyed said they were overweight on emerging markets, down from 56 per cent two months ago.

The proportion of investors wanting to increase investments in emerging market equities more than any other region similarly fell from 31 per cent in December to 20 per cent.

“These lower readings come as belief in China’s economic prospects has eroded,” Merrill Lynch said in a press statement yesterday.

A Reuters poll released yesterday showed that economists expect China’s economy to expand by 9.3 per cent this year, throttling back from double-digit growth in 2010.

Inflation in China was also tipped to quicken to 4.3 per cent, a “much faster build-up” of price pressures than predicted.

“Later this year, Asian policymakers are going to have to be much more aggressive to get inflation under control and the consequence of that will be weaker growth,” Nomura Chief Economist Asia Robert Subbaraman told Reuters.

“For Asia, the challenging part is how to deal with inflation at the time when there is still capital inflows to the region. The risk in Asia is policy is either too slow to respond or the micro — or piecemeal —measures that have been introduced… are going to lose their effectiveness overtime.”

Investors have so far greeted Prime Minister Datuk Seri Najib Razak’s New Economic Model (NEM) with disinterest, owing to lack of detailed policies, timelines and the apparent rollback of ambitious Bumiputera quota reforms detailed in the first half of last year.

The bold recommendations set out in the first part of the NEM to boost competitiveness by reducing quotas appear to have been sidelined in the second part launched last month.

Observers attribute this to stiff resistance from Malay rights groups concerned that such moves will erode the community’s interests.