14/07/2009 (Business Times) - PLANTATION stocks in Southeast Asia will have a rough ride ahead due to rising output, uncertain weather conditions and the still hazy global economic outlook, said Malaysian fund manager OSK-UOB yesterday.

Jason Chong, chief investment officer of OSK-UOB Unit Trust Management, said his funds have been net seller of plantation stocks in the past few weeks.

Chong, who helps manage RM3.7 billion at OSK-UOB, said he expects crude palm oil (CPO) prices to remain weak over the next few months because the industry is entering into a high production period.

“It is basically up in the air right now,” said Chong, referring to the outlook for the palm plantation industry in the second half of the year.

“It depends on a couple of factors. Firstly is the overall economic recovery, as to how strong the global economic recovery is going to be, which at this point in time is still an unknown,” Chong said by telephone yesterday.

Investors have turned cautious about the outlook for palm oil also because latest weather reports suggested that the impact of the El Nino weather pattern may not be as great as hoped, he said.

Investors had hoped that the El Nino phenomenon, usually leads to hot weather in Southeast Asia, will hit palm oil production and drive up the CPO prices.

“If the El Nino would not be as strong as originally anticipated, then the (palm oil) production yield would actually be good, and hence prices will soften going forward,” said Chong.

The fund manager declined to name the stocks that his funds have sold in the last few weeks or those they still own.

Thomson Reuters data showed OSK-UOB Resources Fund, which has about US$64 million (RM229.76 million) in assets, owns shares in Malaysian plantation companies such as Boustead Holdings, Genting Plantation and Kuala Lumpur Kepong.

The net asset value of OSK-UOB Resources Fund fell 24.5 per cent from March 2008 to March 2009 while its benchmark, a resources index, dropped 39 per cent during the same period, data on OSK-UOB’s website showed.

Malaysian plantation stocks have outperformed the benchmark stock index so far this year after CPO price rebounded strongly in the first half of the year and because plantation stocks were the hardest hit in last year’s sell-off.

Top Malaysian planter Sime Darby has gained 38 per cent, second-ranked IOI Corp has risen 28 per cent while industry No 3 Kuala Lumpur Kepong has risen 34 per cent. The wider market has gained 22 per cent.

OSK-UOB’s Chong said Indonesian planters, particularly the Singapore-listed ones, offer better value now because they are cheaper when compared to their Malaysian rivals.

Southeast Asia is the world’s top palm oil producer with Malaysia and Indonesia accounting for more than 80 per cent of global output.