Malaysia State Funds Brace for Cascade of Russia-Ukraine Risks

(Bloomberg) -- Malaysia's largest state-owned funds have no investments in Russia and Ukraine but expect the still-evolving crisis to exert an indirect impact on their performances.

“Our exposure to Europe is actually quite small but something like this goes beyond a local incident. It goes beyond Europe,” Amirul Feisal Wan Zahir, managing director of the sovereign wealth fund Khazanah Nasional Bhd., told reporters on Wednesday. “And that is something we're assessing, but it would be a more general market impact.”

Southeast Asia's state-owned funds have so far been shielded from the crisis that has roiled global markets, with Singapore's Temasek Holdings Pte. saying its exposure to Russia and Ukraine is “insignificant.” A gauge of Malaysian palm oil stocks rose to its highest since September 2014 on Wednesday, while shares of Hibiscus Petroleum Bhd. and the U.S.-listed Indonesia Energy Corp. surged about 20% and 184% each last month.

In fact, money managers Samsung Asset and Modular Asset say fund outflows from Russia in wake of sanctions and index exclusions due to Ukraine may find home in the resources-rich Malaysia and Indonesia. Global funds snapped up $191 million of Malaysian equities this week, and plowed a net $151 million into Indonesian stocks, data compiled by Bloomberg show.

Still, Khazanah is studying the impact on the economy and commodity prices, as well as possible shortages, as markets face waves of volatility following Russia's widening assault on Ukraine. The fund's net asset value grew 9% to 86 billion ringgit ($20.5 billion) in 2021 year-on-year, Amirul Feisal said.

“The retaliation in the form of sanctions, which has implications on commodity prices, we see fuel prices going up. That will lead to governments looking at their policies, whether monetary or fiscal, and how that impacts trade,” he said. “In that kind of volatile environment, it would have an impact.”

Swing Trade

Malaysia's Employees Provident Fund, the nation's largest pension fund, said increased volatility offered opportunities for markets.

“We can make money when markets go up or down because we have a long investment horizon,” Chief Executive Officer Amir Hamzah Azizan said. “When markets go down, and we want to take the opportunity to buy good long term assets, we secure that. The key is to understand what the long-term ramifications are and make sure we have the agility to move our portfolio.”

The EPF posted a 6% year-on-year gain in its total gross investment income to 67.1 billion ringgit in 2021 amid a broad recovery in equity markets and other asset classes. The fund has no direct exposure to assets in Russia and Ukraine, Amir Hamzah said, while announcing a 6.1% dividend on conventional savings and 5.65% for shariah ones.