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This article first appeared in The Edge Financial Daily, on March 28, 2016.

 

KUALA LUMPUR: Blue-chips seem to have gained favour among investors since the start of the year, and analysts see sustained buying ahead in such stocks as foreign funds continue to return to the local market amid the recent rebound in oil prices and the strengthening of the ringgit against the US dollar.

Year to date, the share price of Tenaga Nasional Bhd (TNB) has appreciated about 4.95%, Sime Darby Bhd went up 1.93%, Public Bank Bhd has gained 1.75%, Malayan Banking Bhd rose 5.83%, and Nestle Malaysia Bhd is up 2.18% — in line with the constant influx of foreign funds.

The benchmark FBM KLCI has gained over 100 points over the past few weeks, from touching levels around 1,600 in January, to close at 1,703.79 points last Friday, indicating some steady buying support for index-linked counters.

Etiqa Insurance & Takaful head of research Chris Eng attributed the return of foreign funds to the strengthening ringgit, the poor performance of the FBM KLCI over the past two years and the gradual resolution of the 1Malaysia Development Bhd (1MDB) issue.

“Part of the return has been due to the strengthening ringgit, with hope for more strength, and the poor performance of the Malaysian market over the last two years, with it being among the top three worst-performing regional markets in 2014 and 2015.

“The continued gradual resolution of the 1MDB issue, with the sale of Edra’s (Edra Global Energy Bhd) power assets to Chinese parties is also a positive for the local market,” he told The Edge Financial Daily.

At the time of writing, the ringgit weakened 0.19% to trade at 4.0370 against the US dollar, while Brent crude fell 0.07% to US$40.44. 

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Eng said foreign buying will continue in the near term, but expects foreign selling to start picking up in the following month, as the April US corporate results season is likely to disappoint.

“A disappointment in US earnings will impact investors’ risk appetite, and it is likely that they will sell off their holdings of global equities,” he explained.

Overall, Eng said the buying activity will continue to push up the blue-chips, noting TNB as a good pick, as the stock is a beneficiary of the current hot weather, while the resolution of Edra removed some overhang on the stock.

M&A Securities Sdn Bhd head of research Rosnani Rasul cited the improving outlook for the ringgit and oil prices as factors behind the return of foreign funds, which has supported recent gains in index-linked counters.

“The main choice of foreign funds has always been blue-chips, high liquidity and strong balance sheet counters,” she said, adding that the foreign buying activity is expected to continue in the near term.

According to MIDF Research’s latest fund flow report, liquidity flow into the Asian region remained elevated for the third consecutive week, with net foreign purchases for the Malaysian bourse exceeding RM1 billion for the second week running, for the trading week ended March 18.

It said foreign buyers purchased listed equities amounting to RM1.48 billion, a 42% increase on a week-on-week basis, and were net buyers through every day of the week.

During the week, the research house said Maxis Communications Bhd registered the highest net money inflow of RM11.32 million during the week, followed by Sime Darby (RM9.98 million inflow), Public Bank (RM8.45 million inflow) and TNB (RM8.23 million inflow).

“Thus far in March (until March 18), cumulative net foreign purchases already amounted to RM3.63 billion. Provided there is no break in the momentum of the money flow, the haul in March is set to be the highest since April 2013, which was just before the general election,” said the research house.

According to Bloomberg’s consensus, a number of analysts have “buy” calls on TNB, with a target price of RM15.75, providing 13% upside to its closing price of RM13.98 last Friday.

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