Around Asia's markets: Giving Abdullah benefit of doubt
International Herald Tribune
October 7, 2004
Adeline Lee and Darren Boey 

Malaysian stocks such as Telekom Malaysia are drawing money from overseas investors amid optimism that Prime Minister Abdullah Ahmad Badawi will revitalize the country's biggest businesses.
 
Ray Jovanovich, chief investment officer at Crédit Agricole Asset Management in Hong Kong, began adding Telekom and other Malaysian shares in August after Abdullah embarked on a management shake-up at state-owned companies. "There's the promise of a new era in Malaysia," said Jovanovich.
 
Abdullah, who took power last October, may need to show results quickly to turn the promise into reality. The naming by the government of new chief executives at companies such as Telekom represents a "first installment" of the kinds of changes investors would like to see, said Jovanovich. Malaysia needs to make its companies more efficient and set out clearer business policies, he and other fund managers said.
 
The case for buying Malaysian stocks is "largely conceptual at the moment," said Jovanovich. "You're giving Abdullah and his team the benefit of the doubt."
 
Jovanovich said Crédit Agricole has added shares of companies in which the government has direct or indirect stakes, such as Telekom, the power provider Tenaga Nasional, the tanker owner Malaysia International Shipping and Malayan Banking, the country's biggest lender.
 
Government-linked stocks account for 44 percent of Malaysia's benchmark stock index, according to CLSA.
 
Telekom shares have gained 28 percent since May 19, when the government named Abdul Wahid Omar to run the nation's biggest phone company. Shares of Tenaga Nasional, entrusted to a new chief executive the same day, have risen 24 percent, beating an 8.5 percent advance by the Kuala Lumpur Composite index.
 
Overseas investors held 19 percent of Telekom's shares as of Aug. 31, up from a low of 2.8 percent last year, according to Wahid. "Since the government launched the revamp of government-linked companies in May, we've seen a lot of interest in our stock," he told reporters last month.
 
Abdullah, who succeeded Mahathir bin Mohamad last year, vowed in a speech in May to improve earnings, productivity and transparency at state-owned companies.
 
Aberdeen Asset Management is studying state-linked stocks such as Telekom, Tenaga and the diversified group Sime Darby to gauge whether the changes will "unlock value for shareholders," said Stephanie Lee, a fund manager.
 
Among the skeptics is Mark Mobius, who manages $13 billion in emerging market assets at Templeton Asset Management.
 
"It's too early to tell" whether Abdullah will succeed, Mobius said. Government pledges to scale back preferential treatment of "bumiputera," or Malay entrepreneurs, are positive, Mobius wrote. "But, again, it remains to be seen if they follow through on that."
 
In January, Abdullah backed open tenders for state-funded projects to promote competition and help bumiputera "run without crutches."
 
Other companies meanwhile, are looking positively at Malaysia. Moody's Investors Service said last month that it might lift its Baa1 rating on the nation's foreign-currency debt to at least A3, the highest since 1998, when the economy shrank 7.4 percent.
 
Piyush Gupta, a Citigroup country officer, said recently that the bank might bid for one of five stockbroking licenses that Malaysia plans to offer overseas companies.
 
Still, it may take more steps by Abdullah's government to attract investors like Mobius. In Malaysia, he said, "the key words are: Action speaks louder than words."

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