Malaysia's winners from Ringgit slump look risky to top fund

RIDING out the slump in the Malaysian ringgit by buying technology stocks has lost its allure to one of the nation’s top-performing funds.

Danny Wong Teck Meng, the Chief Executive Officer of Areca Capital Sdn Bhd, said he sold all his technology shares in the past month after the equities started to look expensive and the ringgit rebounded. The Bursa Malaysia Technology Index has surged 52 percent this year to be the best-performing industry group on the nation’s benchmark gauge as the falling currency boosted the value of exporters’ overseas earnings.

The technology index trades at twice net assets, the highest level in eight years and 13 percent pricier than the FTSE Bursa Malaysia KLCI Index. While the ringgit has tumbled 19 percent this year amid a plunge in crude and a scandal involving debts at a state-run company, the currency has rebounded 2.4 percent since the end of September to be the second-best performer in Asia as political concerns receded.

“The ringgit reversal is a big risk,” said Wong, whose Areca EquityTrust Fund has beaten 98 percent of peers over the past three years with a 13 percent return. “At current prices, I will not be buying further.”

Kuala Lumpur-based Wong has bought power plant builder Pestech International Bhd. and information and technology training provider Prestariang Bhd., while he’s also avoiding oil and gas stocks.

Inari Amertron Bhd., which has the biggest weighting on the technology index, has soared 84 percent this year to trade at 5.3 times net assets. A 5 percent drop in the ringgit versus the dollar boosts profit for the semiconductor manufacturer by 5.9 million ringgit ($1.4 million), according to company filings. Malaysian Pacific Industries Bhd., the second largest, has jumped 115 percent and is valued at 2.1 times.

The technology stock index dropped 0.4 percent at the 5 p.m. close in Kuala Lumpur, led by Inari, which declined 1.6 percent.

Malaysia’s currency is “undervalued” and may have turned a corner as the potential resolution of debts at 1Malaysia Development Bhd. lifts the overhang for investors, according to a Dec. 3 report from Affin Hwang Capital. 1MDB, which drew criticism from lawmakers for accumulating 42 billion ringgit of debt in less than five years, announced $2.3 billion of asset sales in November, helping cut the country’s risk of default by the most in an quarter for four years.

Technology companies with overseas earnings will remain a bright spot next year as the ringgit weakness persists and demand for semiconductor components increases, says Kong Heng Siong, a top-ranked analyst at RHB Capital Bhd. in Kuala Lumpur.

Earnings Growth

Malaysian shipments of electronic products surged 23 percent in October, helping drive a 17 percent gain in the nation’s exports that was the most since April 2014.

“Earnings-growth momentum of local technology exporters will outpace the global industry as a whole over the medium term,” said Kong, the most accurate analyst for at least three technology stocks tracked by Bloomberg. Every 1 percent drop by the ringgit versus the dollar boosts profit for the companies he covers by 3 to 5 percent, he said.

Shares have already priced in all the good news, said Ang Kok Heng, chief investment officer at Phillip Capital Management Bhd., which manages $630 million.

The Malaysian technology gauge’s advance this year is 22 times the gain by the MSCI All-Country World Information Technology Index, while the country’s broader gauge has fallen 6.7 percent.

"We are not buying anymore at present because prices have already run up," Ang said by phone in Kuala Lumpur. "It’s expensive.”