Malaysia's Equity Capital Markets Take Breather After Best 1st-Half in 5 Years

KUALA LUMPUR, Malaysia--Though proceeds raised from Malaysia's equity capital markets are nearly seven times the level from a year earlier, recent fundraising exercises signal that the market has turned more cautious.

Initial public offerings in Malaysia raised a combined $1.7 billion so far this year, based on data from bourse operator Bursa Malaysia. This was up sharply from the $250 million raised over the same period last year, and was the highest since 2012. Strength in the market was lifted by robust economic growth, increased fund flows into Malaysia, as well as a recovery in the value of the Malaysian ringgit.

Some of the optimism also stemmed from expectations that Malaysian Prime Minister Najib Razak would call an early election in the fall, to take advantage of the strong economic environment and a weak and divided opposition. Analysts noted that local equities could benefit from the likely fiscal boost ahead of the national elections.

However, the window for Mr. Najib to call an election this year is quickly closing, given a number of major events later in the year, including the national budget in October. This has led many analysts to believe that the election will take place in 2018 instead. The government must hold its next national election by August of next year.

"There is always this optimism when an election is near, but it seems like Najib isn't in a rush," said a fund manager with a Kuala Lumpur-based fund management firm.

Malaysian Deputy Prime Minister Ahmad Zahid Hamidi on Sunday told local media that an election in September would be "too soon," noting that the elections "will be held beyond that," in response to speculation that the election was planned for September.

Among the signs of a weaker market for capital raising, Malaysia's sovereign-wealth fund Khazanah Nasional Bhd. on Wednesday sold a block of shares in lender CIMB Group Holdings Bhd. (1023.KU) at the bottom of an indicative price range, reflecting reduced demand.

That followed wireless operator Maxis Bhd. (6012.KU) in June selling $387 million of stock at the low end of an indicative range. Also in June, Lotte Chemical Titan Holdings Bhd. (5284.KU), a petrochemical unit of South Korea's conglomerate Lotte Group, had to slash the size and price of its planned listing. Lotte Chemical's MYR4 billion (US$932.6 million) IPO is Malaysia's biggest since 2012.

Malaysian equities have performed well this year, though it still underperformed many of its Southeast Asian peers. The benchmark Kuala Lumpur Composite Index was up nearly 7% year to date, while foreign investors have been net buyers of Malaysian stocks in 23 of this year's first 28 weeks. The ringgit has gained more than 4% against the dollar so far this year.

"It is now time for a brief market retracement," said Chris Eng, head of research at Kuala Lumpur's Etiqa Insurance & Takaful, which manages more than $5.6 billion in assets. He expects market momentum to resume in the fourth quarter, due in part to expectations of stronger earnings results.

"With oil price weak and first quarter corporate earnings not that spectacular, it is understandable that investors take profit before coming back into the market ahead of stronger second half earnings," he said.

Write to Yantoultra Ngui at yantoultra.ngui@wsj.com

(END) Dow Jones Newswires

July 21, 2017 03:26 ET (07:26 GMT)