By Shannon Teoh
KUALA LUMPUR, June 24 — Malaysia’s state investment funds are pouring billions of ringgit into safe havens overseas as the local economy looks set to continue a year-long slump with several indices extending their decline in consecutive months.
Malaysia’s leading index, which indicates future economic activity, suffered a second consecutive monthly decline in April, signalling that three consecutive quarters of slowing growth are set to continue, said analysts.
Economists told The Malaysian Insider that funds such as the Employees Provident Fund (EPF) and Permodalan Nasional Berhad (PNB) will be looking to diversify their portfolios as domestic opportunities shrink.
“Opportunities domestically are limited and given potential high returns over the long term in the distressed economies of advanced markets, these funds can also avoid possible asset bubbles locally,” said Yeah Kim Leng, chief economist at credit researchers RAM Holdings.
The Malaysian Insider understands that EPF, which has led a shopping spree of state investment funds worth RM8 billion in highly sought-after London property over the past 18 months, has expanded its foreign portfolio by over 50 per cent since 2010.
A source from the country’s largest pension fund said its overseas portfolio now stood at a record 14 per cent of the RM500 billion at its disposal with previous reports saying it is looking at growing this portfolio to 20 per cent by 2014, giving it another RM30 billion to spend.
“We are looking for safe havens because we don’t want to put all our eggs in one basket,” the source said of the RM5 billion it has set aside for real estate in the global financial capital, of which half has been committed.
He also pointed out that with low interest rates globally, “there is no point pursuing fixed income,” adding that there was a high possibility EPF would eventually allocate more funds to the UK capital.
“Right now there are very few options here. Even the so-called blue-chip counters are “not very blue” and there is a lot of uncertainty with elections coming,” the source added.
Bank of America Merill Lynch’s head of emerging Asia economics Chua Hak Bin also said looking overseas was positive for both the local economy and state investment funds.
“EPF, for example, probably owns about 20 per cent of the equity stock market and has crowded out other players, driven up valuations and reduced market liquidity.
Chua highlighted London as a key option for diversification as “property rights are well defined and the UK is open to foreign investment.”
EPF was most recently linked to the Battersea power plant just south of London’s financial district, which has since been snapped up by Malaysian property development giants SP Setia and Sime Darby for about RM2 billion.
But state funds have dedicated at least RM10 billion to buying up property in London recently, with the pilgrims fund Tabung Haji the latest to join the fray, announcing in April that RM1 billion has been set aside for investments outside Malaysia.
PNB completed a deal in March to buy major London landmark One Exchange Square in the city’s financial district for £500 million (RM2.5 billion), bringing the state-owned asset manager’s buying spree in the British capital over the past year to more than RM4 billion.
It was also reported to be seeking a £628 million five-year term loan to help finance its shopping spree on three landmark London properties, a Thomson Reuters publication, Basis Point, reported last month.
This is despite plans to buy the 350,000 square feet Woolgate Exchange building in the city’s financial district for RM1.27 billion falling through at the eleventh hour in April.
EPF also borrowed £300 million in December in its first offshore loan to fund the acquisition of three London-based properties.
It was also reported last August to be in talks to purchase British supermarket chain Sainsbury’s distribution centre outside central London for RM400 million, and two more properties in London for a total of RM1.5 billion.
The pension fund had earlier bought an office building in London last November for RM780 million as part of plans to invest up to RM5 billion in the British property market.
The increased momentum towards the British market comes as Malaysia recorded an economic growth of just 4.7 per cent for the first three months of 2012, a third consecutive quarterly slump.
Malaysia’s leading index, which helps predict the direction of the economy, registered a decline of 0.5 per cent in April, the same rate of decline in March and contrasts sharply with an increase of 1.7 per cent in February.