24% return fund focuses on long-term growth in Malaysian stocks

(July 2): Malaysian government policies are making the country’s stocks the region’s long-term winners, with a near 10% gain likely to continue, according to one of Asia’s best-performing funds.

“We are increasingly confident in the policies that have been announced so far” and are identifying potential beneficiaries of the new measures that will be implemented, said Chun Hong Lee, portfolio manager at Principal Asset Management Bhd. He added that the benchmark KLCI index could rise another 5% to 9% in the next 12 months.

As he said in an interview last week, steady domestic investment and fiscal consolidation, coupled with a stabilisation of the ringgit, will help reduce risk premiums and lift local stock valuations.

Malaysia’s benchmark index is outperforming Southeast Asia after three years of negative returns as the country becomes a focal point for investment in artificial intelligence (AI)-powered semiconductors and data centers. Success in attracting companies such as Google and Microsoft Corp suggests Prime Minister Datuk Seri Anwar Ibrahim’s policies are taking shape after taking power less than two years ago.

Anwar is boosting spending in the semiconductor industry and building manufacturing and renewable energy capacity, while foreign investment has surged. The growing investor confidence in his plans is a turnaround from last year, when global funds retreated amid uncertainty over the government’s proposals to boost revenues and plug the fiscal deficit.

The interest in local stocks also coincides with authorities calling on domestic asset managers to repatriate overseas earnings to support the market and the ringgit.

Lee’s bet on the country’s policy direction and AI boom is paying off. The RM1.7 billion Principal Dali Equity Growth Fund he manages has beaten its benchmark with an annual return of 24%. The fund’s investments are aligned with Islamic principles and regulatory policies.

Energy company Tenaga Nasional Bhd (KL:TENAGA), technology firm MyEG Services Bhd (KL:MYEG) and construction company Sunway Bhd (KL:SUNWAY) are among the fund’s biggest holdings, as Lee favours utilities, construction and telecommunications companies.

Data center investment is expected to start contributing to the economy in six to 12 months, which bodes well for corporate earnings prospects. It was an improvement in earnings consensus after disappointing results before 2024, said Lee, who is based in Kuala Lumpur.

Political stability is another factor that distinguishes local action in the region, as Thailand’s prime minister grapples with legal cases, Vietnam undergoes a regime change and the rift between the Philippines’ leaders deepens.

Of course, a delay or less aggressive rate cut by the Federal Reserve could affect flows into Malaysian stocks. Foreign investors are also closely watching the pace of local reforms before buying more stocks.

“We believe the stock market will continue to evolve positively. We just need to monitor the implementation of government policies,” Lee said.

Posted by Chng Shear Lane