Foreign interest in Malaysian real estate picks up: Knight Frank
KUALA LUMPUR: Foreign investors' interest in Malaysian real estate,
particularly commercial property, is picking up due to the weakened
ringgit, said Knight Frank Malaysia Sdn Bhd.
"What we are noticing is that given the ringgit is currently at one of
its lowest (levels) in the last many years, interest in Malaysian real
estate is actually now coming back because people feel there is upside
not only in terms of capital value appreciation but also the fact that
the ringgit will move back possibly to better levels. We are certainly
seeing this," its managing director Sarkunan Subramaniam told reporters
at a briefing on Knight Frank's The Wealth Report 2016 yesterday.
Executive director James Buckley said it has been seeing interest from
the Middle East and the US who are typically opportunistic investors
attracted by the currency play here which, combined with the slightly
subdued property market fundamentals, makes it a good time for them to
enter the market.
"I've got two significant groups coming this week ... one from the US,
one from Japan. It's a regular basis now and has been picking up from
last year. A lot of them are doing initial trips to understand the
market a bit better. They are really focused on commercial investments
so the office market, retail market and some are interested in
hospitality assets as well," he said.
Buckley said in the past, foreign investors investing in Malaysia were
typically from Japan and the growing interest from the US is surprising
as the Malaysian market is small compared with the US market.
He said these investors are attracted by the currency and the slight oversupply of office space in Kuala Lumpur.
"It is a good time for them to negotiate some good deals here," Buckley
said, adding that most of the foreign interest in Malaysia come from
Korea, Japan, Singapore and the Middle East.
Meanwhile, the trend among local property investors is also changing,
with interest moving from office space and agricultural land to office,
retail and hospitality assets. However, residential property remains the
core real estate investment for Malaysians.
"In the global context, interest in commercial property is growing quite
strongly. What came out of The Wealth Report is that 47% of UHNWIs
(ultra high net worth individuals) are expecting to increase their
allocation in commercial property. In the Malaysian perspective, we do
see a gradual rise in the interest in commercial property. Particular
popular choices for Malaysians are office and retail investments, and
they are looking to increase their exposure to these assets over the
next 10 years," said Buckley.
He said there is a misconception that investing in commercial property
is more complicated while some feel they lack experience investing in
this sector but interest is picking up as investors are becoming more
familiar with the market and understand better the benefits of investing
in commercial property.
The report showed that Malaysian high net worth individuals (65% of
survey respondents) have increased their asset allocation to residential
property.
Moving forward, 65% of Malaysian survey respondents said they will
increase asset allocation to residential property in the next 10 years.
In terms of property purchases this year, 39% of Malaysian UHNWIs said
they are considering residential purchases. This is more than 29% of
global UHNWIs who intend to buy residential property this year.
On average, Malaysian UHNWIs own more properties (4.7) compared with the
global and regional average of 3.7 and 3.92 respectively. As for
overseas investments, the top three locations for Malaysian investors
are Australia (Melbourne), the UK (London) and Singapore.
Bulls making a comeback
Foreign funds are putting money in emerging markets
HUMAN beings have a natural tendency to fear heights – it’s a natural
survival instinct which worked well in the wilderness and in the
outback, but one which severely plays against us when it comes to the
stock market.
Seven years ago, back in early 2009, these were some of the top financial headlines in the US:
>
Georgo Soros says US banks ‘basically insolvent’
No one knew it then, but the Dow Jones was about to embark on a
seven-year bull run and would gain some 92% over that period. Riding
along was the FBM KLCI, which gained 85% over the same period.
For sure the ride has been bumpy and riddled with sharp corrections. But
for investors who held on to their stocks, they would have been
rewarded with handsome returns.
For any investor invested in the market – volatility will always be
there. But as long as they are able to endure the frailty and
fluctuations of the market, the long-term rewards historically outweigh
the short-term fickleness.
We have heard it many times before – the best time to own stocks is when sentiment is at its worst,
This was especially apparent in early 2009 when the US economy was on
the brink of a banking collapse, In those dark days, there were more
forecasts of Black Mondays than predictions of light at the end of the
tunnel.
Eng: ‘The market has had a good run since January.’
The stock market, as always, had a mind of
its own. Despite the proclaimation of dooms and the fall of many
American banks, the Dow was heading almost on a straight upward
trajectory by mid-March 2009.
Sir John Templeton said: “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”
That was true seven years ago, 50 years ago, and definitely just as true today.
Logically speaking, what comes down must go up.
Earnings can still be nasty, but doesn’t the market always behave a year
forward. At the heart of it all, the market is made up of buyers and
sellers. All it takes are a few buyers during a down period to sniff out
an opportunity, and suddenly, the market is edging upwards.
It’s the same story with oil prices. Do not expect the coast to be
completely clear – for example no more excess inventories, oil demand
significantly outpacing supply or the Organisation of the Petroleum
Exporting Countries (Opec) deciding to cut production by 50% – before we
see oil prices moving up.
By the time these signs are crystal clear, oil prices have made new highs months ago.
In any case, last week the International Energy Agency (IEA) said that
oil prices had bottomed out due to US and other output cuts outside the
Middle East-dominated Opec.
The US rig count fell for a 12th straight week last week to a total of
386, its lowest since December 2009 as drillers continue to slash
capital expenditure.
Zulkifli: ‘These are still early days of a recovery. People are still sceptical ...’
The problem now is that after a seven-year
run, investors are getting nervous. Investors have mostly been in a flux
wondering where the market is heading. Most investors are waiting for
the crash to come. They talk about a sluggish economic outlook, falling
earnings, recessions in commodity-heavy nations, slowing growth in
China, negative interest rates, the end of quantitative easing in the
US, the UK (potential Brexit) and flatter yield curves.
Has the market stalled and lost some of its stamina? With the
expectation only of mediocre growth and low yields, is it time to sell
stocks?
Behind the scenes, some under-appreciated indicators are starting to show some light.
First of all, the ringgit has been strengthening – a reflection of
foreign money coming back to Malaysia. It strengthened 0.6% this week to
RM4.09 against the greenback.
Last week, foreigners bought listed equities amounting to RM1.04bil on
Bursa Malaysia, higher than the RM972.2mil acquired in the preceding
week. To date, there are some 12 consecutive weeks of total net inflows
and brings cumulative year-to-date foreign purchases to RM1.6bil.
For the entire 2015, there was a net outflow of RM19.5bil.
Meanwhile the FBM KLCI closed at 1,703.19 on Thursday, which is also its
six-month month high. The seven-month high is 1,744.19 recorded on Aug
3, 2015.
From a charting perspective, a recovery in the FBM KLCI appears to be playing out.
“We reiterate our view that KLCI must close above 1700 levels
convincingly to sustain the ongoing rally from 1600, with key upside
target at 1710 (March 7 high), 1727 (Oct 19 high) and 1740 (200-day
simple moving average) levels. Failure to close above 1700 will see the
index continue its short-term congested range-bound consolidation within
the 1660-1700 territory,” says Hong Leong analyst Nick Foo.
Etiqa Insurance & Takaful head of research Chris Eng, on the other hand, feels that the market is toppish for now.
“The market has had a good run since January. It may have a few more
legs to run, but come April, it will be earnings results in the US, and
in May, it will be earnings result in Malaysia. We aren’t expecting very
positive earnings coming out, so market may start falling again by
April,” says Eng.
From a trading perspective, he would ask clients to sell into strength.
On a fundamental perspective, however, he isn’t expecting a recession,
well at least not this year. He would still advice investors to stay
invested in equities.
“We are expecting some weakness in the market come middle of the year.
That would be a better time to buy. We would identify that weakness and
look for opportunities then,” says Eng.
MIDF Research has been recommending its clients to start buying since the start of the fourth quarter last year.
“These are still early days of a recovery. People are still sceptical,
especially retail investors. But we have been tracking the money flows,
and foreigners have been net buyers every single day of the 14 trading
days so far this month, which is a phenomenon not seen in more than two
years” said Zulkifli Hamzah, head of MIDF Research.
According to Zulkifli, the Malaysian equity market is benefiting from a
tide of global liquidity flowing into Asia. Some of the money is
actually global funds in China, being reallocated to other Asian markets
as the outlook in Asia’s biggest economy is challenging.
“In the bond market, Malaysia started to look attractive to the
foreigners as early as September last year. The low global interest rate
environment, with negative rates in some countries, has made local
yields very attractive indeed. That is reinforced by the depressed
Ringgit,” said Zulkifli.
“Overall, we are positive on the market. Sceptism of the market has been
partly due to the relatively restrained climb in the index. But this
has been due to selling by local funds, which are understandably taking
the opportunity of the market’s upward march to realize their profits.
We also do not expect to see such a steep incline in the indices because
of rotational forces at work,”
“Global investors are not going to come in and buy blindly across the
board although the Ringgit is seen as undervalued. They will be
selective and buy only those stocks that they see value. We believe the
current uptrend has legs. However, there are potential potholes which
may cause temporary retracement, at which point it would be opportune to
enter the market,” said Zulkifli.
He added that the changing of guard in Bank Negara and the Sarawak state election would be closely watched by foreigners.
No rate hike is good for Malaysia
On Wednesday, Federal Reserve officials lowered their view of the
economy and said they likely won’t raise interest rates as swiftly as
they had previously anticipated as there are lingering risks posed by
soft global growth and financial-market volatility.
Policy makers left short-term interest rates steady and said they would
raise their benchmark rate just twice this year, after an initial
increase in December 2015, down from the four they previously predicted.
Last week European Central Bank (ECB) chief Mario Draghi announced a
much bigger and wider-ranging stimulus package than anyone had expected
He increased his purchases of financial assets by a hefty 20 billion
euros per month (from 60 billion-80 billion euros), pushed interest
rates lower into negative territory (by 10 basis points), improved
financing for the banks and announced his intention to buy investment
grade corporate bonds.
In other words, the ECB will pay banks 0.4% to lend. This puts the eurozone in a negative interest-rate situation.
This move inevitably makes Malaysia more attractive.
Recessionary pressures and low interest rates in the US are a boon for
emerging markets like Malaysia. This is further helped by economies like
Japan and China which are continuing to cut interest rates to kickstart
their economies.
With US and eurozone interest rates having stayed in negative territory
for so long, and doubts on future rate hikes, investors are getting
desperate for yields.
So they come to Malaysia, where the average yield on a 10-year dollar
bond is higher by some 140 basis points than a similar US Treasury
10-year note.
Also, after a torrent of bad news, some confidence is returning to Malaysia.
Last month, Fitch Ratings affirmed Malaysia’s long-term foreign and
local-currency issuer default ratings (IDRs) at A- and A respectively,
with stable outlook.
Malaysia’s senior unsecured local-currency bonds were also affirmed at A
while the country ceiling was affirmed at A and the short-term
foreign-currency IDR at F2.
The three rating agencies – Moodys, S&P and Fitch Ratings – have
given the same credit rating of between A3 and A- with stable outlook
for Malaysia.
Bank Negara also announced that Malaysia’s economy grew by 4.5% in the
final quarter of last year, which was better than expected. This brings
the full-year gross domestic product growth to 5% from 6% in 2014.
The recent stability in the ringgit was also a positive factor for
foreign investors, and this has taken away some of the foreign exchange
risk of investing here.
The ringgit is the best-performing emerging-market Asian currency over
the past three months, having been one of the worst performers last
year. Year-to-date, the ringgit has gained 2.05% against the US dollar.
The economy is on a better footing now that the Government has revised
its budget based on oil prices between US$30 and US$35, and the country
is on track to achieve its targeted budget deficit of 3.1%.
by Tee Lin Say The Star
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Door opening in emerging markets
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