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Tuesday, 17 January 2017

(The Star) Franklin Templeton sees opportunities in Malaysia

KUALA LUMPUR: The weak ringgit has made Malaysia an inexpensive market for foreign investors, according to Franklin Templeton Investments.
The global fund manager, which is looking at increasing its exposure to Malaysian equities, said the country remained a resilient economy despite having been affected by global financial volatilities.
“Malaysia has become much cheaper (to invest in) than before... we see opportunities in Malaysia from the equity perspective,” Templeton Emerging Markets and Franklin Local Asset Management managing director and chief investment officer Stephen Dover said.
“What we are pleased about Malaysia is despite the volatility in its currency, it has been a very resilient economy, and that it is still growing at a very healthy rate,” he told a media briefing on the emerging market outlook 2017 here yesterday.
Dover noted that Malaysia’s dependence on commodities had not been very well understood.
“There have been concerns that Malaysia is a commodity economy... although it is still an important part of Malaysia, it has reduced significantly from what it was in the past, which I don’t think is very well understood,” Dover said.
Dover added that concerns around the protectionist policy stance of the incoming administration in the United States was overdone.
According to Dover, among the sectors that Franklin Templeton saw growth in Malaysia were consumer, technology, banking, construction, oil and gas, as well as some export-oriented industries and small-cap companies.
Dover expected the global economy to see growth in the next two years and this could benefit emerging markets.
The fund, he said, was positive on investment opportunities in emerging-market economies.
“Emerging-market currencies have already fallen with the large rise of the US dollar over the last few years... and this provides some sort of a buffer for our investment,” Dover explained, adding that the risk of emerging-market currencies falling further was much lower than the opportunity for them rising higher.
“There is an appetite for the emerging market – partly because most investors have been underweight on emerging markets, which account for 11% of the global indices and 36% of global gross domestic product.
“But big institutional investors on average have only 5% to 6% invested in emerging markets.
“So, they are underweight on emerging markets, and it is unlikely that they are going to be anymore underweight. That’s an underlying positive for the emerging market, going forward,” Dover said.
In terms of valuations, Dover said emerging markets were relatively inexpensive, with the MSCI Emerging Markets Index trading at a significant discount to the MSCI World Index on a price-to-book-earnings-multiple ratio.
“We see emerging markets having a turnaround in earnings growth. This will allow emerging markets to perform well.
“In terms of valuations, if earnings go up, emerging markets will become even cheaper,” Dover said.
On the impact of potential US interest rate hikes on emerging markets, Dover said it would depend on the reason of the rate hike in the world’s largest economy.
“There is no direct correlation between interest rate hikes and the ups and downs in the emerging market.
“If the rate hike is due to growth, which is also the case for the United States, then it will be a positive for emerging economies,” Dover explained.

“If the rate hikes are due to higher inflation, then it will put a dampener on growth, particularly on the emerging market,” he added