Election 2013! How Are Malaysia Equity Funds Reacting To It?

With the Parliament FINALLY dissolved on the 3rd of April 2013 hurrahhh, everyone is eagerly waiting for the announcement of the voting day for the 13th Malaysia General Election. Be it your regular kopitiam or Facebook, there's bound to be political issues being discussed daily. The upcoming election has been deemed the closest ever as both ruling party and opposing party are confident of forming the federal government. With that uncertainty at hand, many investors including fund managers have been taking precaution since January 2013 by liquidating their stock holdings. The strategy implemented by many Malaysia Equity funds is to accumulate more cash in anticipation of buying opportunities when the local Bursa falls.

In today's post, I will be looking at a few Malaysia Equity funds in terms of how much cash they are currently holding and what kind of stocks they are still holding on. Since there are so many Malaysia Equity funds, I've decided to select only funds that recently won The Edge-Lippers 2013 award. 

1) Kenanga Growth Fund 

(Winner of Best Equity Malaysia Fund for 3 Years, 5 Years and 10 Years) 

Top 10 Holdings as of 28th February 2013

Asset Allocation as of 28th February 2013

2) Eastspring Dana Al-Ilham
(Winner of Best Equity Malaysia - Islamic Fund for 3 Years and 10 Years) 

Top 10 Holdings as of 28th February 2013

Asset Allocation as of 28th February 2013

3) Hwang AIIMAN Growth
(Winner of Best Equity Malaysia - Islamic Fund for 5 Years)

Top 10 Holdings as of 28th February 2013

Asset Allocation as of 28th February 2013

Summary

As of 28th February 2013,  

• Kenanga Growth Fund has about 21.85% of its fund NAV (RM18.02 million) in cash. 
• Dana al-Ilham has about 13.92% of its fund NAV (RM10.03 million) in cash. 
• Hwang AIIMAN Growth has about 26.9% of its fund NAV (RM24.23 million) in cash.

Under normal circumstance, most pure Malaysia Equity funds would have between 90% - 95% invested into shares. Due to the election, top Malaysia Equity funds are anticipating buying opportunities when the market falls. The possibility of a market drop between dissolution of parliament till election day is higher as shown by the data below:

In the 2008 election where BN only managed to retain 63.1% of the parliamentary seat, the KLCI lost approximately 8.9%. Imagine how much the index would lose if the majority for BN in 2013 is slightly above 50% or perhaps below 50%?

Some investors have already started switching their existing Malaysia Equity funds to other safer havens such as fixed income funds. Never the less looking at funds such as Kenanga Growth, Dana al-Ilham and Hwang AIIMAN, which have been freeing up cash since January 2013, I believe this is an opportunity for these funds to make a profit from opportunity buying. 

Furthermore with most funds currently having only 70% - 80% invested in equity, even if the market suffers a 10% drop, the loss to the fund is expected to be about 7% - 8% only which can be easily recovered by future profit from stocks bought at low prices using already available cash. Logical?

Just my 2 cents here!

Cheers and Happy Investing.

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