KUALA LUMPUR: Khazanah Nasional Bhd’s reported move to reduce its global presence and trim stakes in non-strategic areas may serve as good news for domestic assets and a boost for the ringgit, economists said.
Although the asset sales will mean a change in the Malaysian sovereign wealth fund’s strategic direction to help pare down the government’s debt, economists believe Khazanah could use part of the proceeds to buy strategic assets locally.
However, this must be on condition that the move yields the desired returns for Khazanah, they added.
Reuters reported, citing sources, that Khazanah was set to unveil its plan to raise more cash to help the government manage its depleted fiscal deficit and massive debt from a multi-billion dollar scandal at 1Malaysia Development Bhd (1MDB).
“Under the new strategy, set to be announced at Khazanah’s annual review on February 28, the fund will look to trim stakes in some companies identified as non-strategic to 15-25 per cent - near the typical holding levels of pension funds,” two of the sources were quoted as saying.
Other two sources said Khazanah aimed to reduce its physical presence in overseas locations such as London, Mumbai and Silicon Valley and considers reducing its investments in foreign properties and tech investments too.
In the local scene, Khazanah may reportedly cut its stakes in CIMB Group Holdings Bhd, Axiata Group Bhd and UEM Group Bhd.
However, the sources said Khazanah would maintain strategic holdings in companies such as Tenaga Nasional Bhd, Malaysia Airlines Bhd, Malaysia Airports Holdings Bhd and Telekom Malaysia.
Putra Business School associate professor Dr Ahmed Razman Abdul Latiff said with the change in investment objectives for Khazanah, local companies should take the opportunity to boost up their assets efficiency and value if they wish for investments from Khazanah.
“Even though there could be more opportunities for the domestic market, Khazanah will still need to ensure that its local investments will be able to give the intended returns,” he told NST Business.
More importantly, he said, the question will be centered on Khazanah finding suitable alternative domestic investments that can fulfil the intended objectives of providing cash returns to the government.
“Hopefully, when the government coffer is improved, Khazanah can re-strategise its investment towards having more value added assets in a long-term outlook,” he said.
Razman said selling off Khazanah’s foreign investments to reinvest in local markets would have some impact on the ringgit, albeit temporarily.
Sunway University economics professor Dr Yeah Kim Leng said Khazanah's potential overseas divestment largely reflected the change in its strategic direction to align with the new government's needs and aspirations.
It may not necessarily boost domestic asset markets if the foreign asset sell-offs were directed at paring down government debts and reducing its debt servicing burden.
However, he said, part of the proceeds could conceivably be used to buy strategic domestic assets but only if these yield the desired returns as Khazanah is transformed into a passive portfolio investor rather than a national private equity-like fund.
Yeah said the inflow of proceeds will have the positive effect on ringgit as well as add to domestic liquidity that will benefit the bond and equity markets and the banking system.