KUALA LUMPUR (Dec 22): Permodalan Nasional Bhd (PNB), the country's largest fund management company, is planning to increase its exposure in the global market next year as the ringgit strengthens.
Today, over 90% of its investments are still onshore.
"This question on our international investment portfolio was previously addressed. At the time, the ringgit was not at a favourable position for us to invest overseas," its chief executive officer Datuk Abdul Rahman Ahmad told a media briefing to announce PNB's performance for the financial year ending Dec 31, 2017 (FY17).
"[Now] the ringgit has strengthened to (a) level that we can be able to start judiciously investing overseas," he said.
The ringgit has recovered from 4.49 against the US dollar in early 2017, supported by strong trade surplus and higher commodities prices from a year ago, as well as net foreign inflow for the year 2017. As at 2.40pm today, the ringgit was trading at 4.0845 to the US dollar.
PNB is of the view that the local currency may further strengthen to 4.0 against the greenback as at end-2018.
PNB chairman Tan Sri Abdul Wahid Omar said the fund manager has revised Malaysia's 2017 gross domestic product (GDP) growth forecast upwards to 5.8% from 5.3% previously, on expectation of continued momentum in 2018.
"Malaysia's GDP growth in 2018 is expected to be between 5% and 5.5%, which will help drive the ringgit higher towards the end of 2018," said Abdul Wahid.
Increasing its overseas portfolio is just one of several strategies for PNB to grow its assets to RM350 billion while reducing its cash holdings to 12% by 2022, from RM276.5 billion and 17.9% respectively as at end-November 2017.
Reuters reported on Nov 16 that PNB sought to increase its presence in private investments, fixed income and property — which is inclusive of landbanking — to support the agenda.
With the stronger ringgit providing a foundation for overseas investments, PNB may also be motivated by returns it already received from small investments done in a "possibly peaking" US equities market in 2017, said Abdul Rahman.
"A consensus view of 9% to 10% of earnings growth among American corporations certainly looks attractive, but with record highs posted in the US equities market, we will take a conservative approach in anticipation of market corrections," he added.
It recently disposed of its investment in the Australian property market through the sale of Santos Place in Brisbane for A$370 million or AU$999 per sq ft, he said, adding that the returns will be reinvested into other international properties when the opportunity arises.
In the meantime, PNB, with effective presence in a number of Malaysia-listed companies, is seeking to push for organic earnings growth in the companies in 2018.
This follows a slew of structural changes that has set the stage for improved evaluation and quality of performance, including the demerger of Sime Darby Group, UMW Oil & Gas Corp Bhd from parent company UMW Holdings Bhd, as well as Chemical Company of Malaysia Bhd with CCM Duopharma Biotech Bhd — all of which were completed this year.
PNB's private highway concessionaire Projek Lintasan Kota Holdings Sdn Bhd (Prolintas) will also undergo restructuring in 2018, which Abdul Rahman said it is on track for listing in 2019.
Abdul Rahman also said PNB will remain invested in Bursa Malaysia as a sign of continued support to the local economic growth. He also urged other Malaysian companies to further drive earnings growth to keep the local stock market attractive to foreign investors.
"Consensus is forecasting a 6% to 7% growth in 2018 corporate earnings. Capital follows performance, which is why we urge Malaysian companies to deliver better performance and continue to attract foreign investors to the Malaysian market," he added.
The local market has seen foreign outflows in September and October, said Abdul Rahman — but the year has seen net inflows of some RM11 billion to-date amid the stronger ringgit, coupled with Malaysia's better-than-expected GDP growth trend and expectation of a one-off interest rate hike by Bank Negara Malaysia next year.