Around Asia's Markets: Dividends pay off for Malaysia
International Herald Tribune
JULY 23, 2006
Chen Shiyin

KUALA LUMPUR Malaysia's stock market has risen this quarter as share prices across Asia have fallen, and the relatively high dividends paid by local companies may lead to further gains.

"Investors are now seeking dividend yields because they can't be sure about capital appreciation," said Gerald Ambrose, a fund manager at Aberdeen Asset Management in Kuala Lumpur. "Malaysia's dividend is among the highest and most reliable in Asia."

The Kuala Lumpur Composite index, which gained more than Morgan Stanley Capital International's Asia- Pacific index last week, yields 4.28 percent. Only the SET index in Thailand offers more among benchmarks for the 10 biggest Asian markets.

Shares of Malayan Banking, the most valuable public company in Malaysia, yield more than any other lender in the region, according to data compiled by Bloomberg.

What's more, payouts to shareholders in Malaysia have climbed faster than stock prices in the past four years. The dividend yield on the Kuala Lumpur index was 2.74 percent in December 2002, when a rally began that took stocks 50 percent higher.

The index has risen 1.1 percent in the quarter, compared with a 4.2 percent decline in the dollar-denominated MSCI Asia-Pacific index. Hong Kong's Hang Seng index and the SET, the only other benchmarks for the region's top 10 markets to rise, both have gained about the same amount.

Among Asian benchmarks, Malaysia's index was the least erratic during the past 60 days, according to Bloomberg data. The 9.8 percent volatility reading for the period was less than half the 25 percent for the MSCI Asia-Pacific index.

"Malaysia is relatively safe," said Teng Ngiek Lian, chief investment officer of Target Asset Management in Singapore. "Although Malaysia has not rallied in recent years, the market also doesn't drop as much during downturns."

The local index has lagged behind MSCI's regional benchmark in each of the past three years. In 2005, the Kuala Lumpur gauge fell 0.8 percent, compared with a 21 percent gain for the Asia-Pacific index.

History suggests Malaysian stocks will be among Asia's better performers this year. Since the MSCI Asia-Pacific was introduced at the start of 1988, the Malaysian index outperformed in six of the seven years that the regional benchmark declined.

The exception was 1997, when the local currency slumped during the Asian financial crisis, an event that prompted then-Prime Minister Mahathir Mohamad to impose capital controls and peg the ringgit to the dollar a year later.

Those controls were loosened on July 21, 2005, almost exactly a year ago, and the currency has appreciated 3.3 percent since then. Further strengthening is expected and that will help draw investors to Malaysian stocks and other ringgit-denominated assets, said Mark Jolley, Deutsche Bank's Hong Kong-based chief Asian strategist.

"The dividend yield in Malaysia is pretty attractive," said Jolley, who favors bank and real estate stocks. "If you get a little bit of currency appreciation on top of the dividend, it's not hard to get a reasonable return."

The Kuala Lumpur index has delivered a return of 8.1 percent during the past year in dollar terms, almost double the ringgit's return of 4.6 percent, according to Bloomberg data.

Jolley and his counterparts at Macquarie Securities, Citigroup and Credit Suisse recommend investors hold more Malaysian stocks than represented in benchmark indexes.

Dividends aren't enough to attract Geoff Lewis, head of investment services at JF Asset Management in Hong Kong. He prefers to invest in stocks that offer the greatest potential for growth.

"You shouldn't be looking for dividend investment in Asia," said Lewis, who recommends investors hold fewer Malaysian stocks than the Asia-Pacific index suggests.

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