Stormy days continue for country and economy

COMMENTARY

OCT 23 - The storms in downtown Kuala Lumpur is nothing to the storm surrounding EPF's RM5 billion loan to the highly-secretive fund manager Valuecap Sdn Bhd.

Nothing to the torrent of criticism against Finance Minister Datuk Seri Najib Abdul Razak, who inherited the job as a sign of good faith from Prime Minister Datuk Seri Abdullah Ahmad Badawi.

Nothing to the deluge of vitriol against Abdullah as Umno foes and bitter critic Tun Dr Mahathir Mohamad scheme to hasten his departure.

Nothing to the dark clouds of disappointment that Datuk Seri Anwar Ibrahim is not yet Prime Minister and won't be for some time to come.

But let's look on the bright side of things, if any.

Najib today launched the Malaysia Savings Sales 2008, the rebranded Year End Sales (YES) where retail stores try to convert the sound of footfalls into the ringing of cash registers.

Discounts are aplenty of course but wallets remain closed and credit is running short with Dr Mahathir saying unpaid credit card bills amount to some RM20 billion in Malaysia.

Not to mention the numerous personal loans being extended by local banks shielded from the global financial meltdown.

Put in that perspective, Valuecap's RM5 billion loan from the Employees' Provident Fund (EPF) is decent. Its just slightly less than the fund's second quarter income of RM5.2 billion but not even one percent of Bursa Malaysia's market capitalisation.

Which means?

OSK acting head of research Chris Eng said even if the entire amount is invested in index-linked stocks, it would theoretically lift the key Kuala Lumpur Composite Index by only 10 points.

The market fell 12.96 points to 891.32 points at the close today.

"Then again, the RM5 billion would have a multiplier effect that is larger than its actual sum as the buying activity, or even anticipated buying activity by Valuecap could lift sentiment and push the KLCI higher," Eng said.

The thin liquidity on the stock market will also see the RM5 billion having a multiplier effect, he added.

Valuecap, set up in 2002 to buy undervalued stocks, invests specifically in the Malaysian equity market and is jointly owned by Khazanah Nasional Bhd, Permodalan Nasional Bhd and the Retirement Fund (Inc).

Second Finance Minister Tan Sri Nor Mohamed Yakcop said yesterday the loan was viable as Valuecap's portfolio had grown from RM5 billion initially to RM8 billion now.

Of course, the question is whether Valuecap can get more bang for its buck, and analysts believe so if it focuses on blue-chips such as MISC, Petronas Gas, DiGi, British American Tobacco, Petronas Dagangan, MAS, Sime Darby, Maybank, IOI, AMMB and MMC.

However, funds like Valuecap do not speak of its investments as it is only obliged to make the information public only if its investments in a company exceed the five per cent threshold.

From publicly-available documents, Valuecap has paid a total of RM135 million in dividend between 2003 and 2006 with the bulk of investments in trading and services sectors followed by banking stocks.

It has never lost money and has made more than RM200 million in net profit annually since 2003. Valuecap's best year was in 2004 when it made a net profit of RM504.1 million, an 81 percent surge. In 2006, it chalked a net profit of RM439 million.

One only hopes Valuecap's returns from now are more than the 5.8 percent dividend that EPF gave out last year to its contributors.