Morgan Stanley Adds to Malaysia Woes
May. 15, 2001
KUALA LUMPUR, Malaysia (AP) _ Morgan Stanley Capital International is expected to cut Malaysia's weighting by more than half in at least one of its closely tracked indicactors, dealing another blow to an already depressed stock market.
The widely anticipated move is not expected to cause a dramatic investment outflow from Malaysia because foreign funds are already severely underweight and in most cases below the anticipated new weighting, analysts said.
Nevertheless, sentiment is already grim due to lower corporate earnings, an economic slowdown and worries about a currency devaluation, and the weighting is rattling investor nerves on the Kuala Lumpur Stock Exchange.
The key Composite Index of 100 blue chip stocks on Tuesday finished down 0.9 percent at 561.6 points, the lowest level in just over one month. The MSCI announcement is scheduled for Saturday and is part of a move to gradually adjust its global indices to a free-float weighting system.
The changes have huge implications. MSCI estimates $500 billion in global funds are directly linked with its indices and $3 trillion are benchmarked against them.
Malaysia, along with Hong Kong, is expected to be the hardest hit in the region by the changes, Deutsche Bank said earlier this week.
Analysts polled by Dow Jones Newswires expect Morgan Stanley to reweigh Malaysia in its close-tracked MSCI All Countries Far East Free ex-Japan index to between 4 percent and 5 percent from 8.9 percent, where the weighting stood on April 30.
``Malaysia will be significantly affected but the actual impact should be minimal given that most funds are probably well below that already,'' said Chehan Perera, deputy head of research at ABN Amro Asia Equities Research in Kuala Lumpur.
``The move is well-anticipated and lots of people have already sold down but in an environment where sentiment is bad, this could make it worse,'' said Terence Wong, head of research at Straits G.K. Goh Research.
Included in sweeping changes to its indices, MSCI will publish the full list of constituents and their inclusion factors for the MSCI Provisional Index Series, a new set of indices it will begin calculating and publishing May 31.
This new series, which includes a measure of free-floating stock, or the volume of publicly held shares available to investors, will run in tandem with existing indices based on full market capitalization. The new system will be phased in over two stages on Nov. 30, 2001 and May 31, 2002.
Hurting Malaysia is the relatively low amount of free-floating stock available in some of the country's biggest listed companies, including Telekom Malaysia Bhd. and Tenaga Nasional Bhd. which are largely controlled by the government.
Fund sentiment on Malaysia is already negative. A Dow Jones Newswires Asia poll in April ranked Malaysia just above Indonesia, the most underweight country in the region.