This article first appeared in The Edge Financial Daily on May 14, 2019
KUALA LUMPUR: The outflow of foreign funds from Malaysian equities swelled to US$108.3 million (RM450.53 million) last week — the largest outflow in nine weeks. But the country was not the worst compared with its Asean peers.
According to Bloomberg, Indonesia’s outflow last week stood at US$211.7 million, while Thailand’s was at US$199.3 million. The Philippines and Vietnam saw net outflows of US$51.8 million and US$22.5 million, respectively.
On a month-to-date basis, Malaysia’s net outflow was at US$126.8 million, against Indonesia’s US$293 million and Thailand’s US$262.1 million.
Nonetheless, Malaysia saw the worst net flow of foreign funds, on a year-to-date (YTD) basis in Asean, with a net outflow of US$801.3 million, followed by Thailand at US$562.8 million. Indonesia’s YTD outflow was US$4.29 billion, while Philippines’ was at US$769.2 million and Vietnam’s was at US$167.5 million.
While the heavy foreign selling persists, MIDF Research’s Adam M Rahim sees that there could be a possibility that Malaysia could see a net inflow of international funds towards the end of this year, noting that foreign investors are still waiting for further clarity on policies.
“I’m expecting a series of foreign inflows back into Malaysia, following the conclusion of other regional general elections,” Adam told The Edge Financial Daily over the phone.
He opined that the huge selling of foreign funds was expected and was bound to happen, regardless of the change in government during the 14th general election (GE14).
“After the GE14, the foreign investors were set and want to jump to other regional markets to take advantage of the pre-election rallies in the other respective markets such as Thailand and Indonesia,” he added.
Areca Capital Sdn Bhd chief executive officer Danny Wong Teck Meng noted that the net outflow of foreign funds continues, however, he noted that it is almost towards the tail-end, unless that is a big trigger to the market.
Wong said only around October will the market see a clearer picture on government policies.
“It really depends on the fundamentals of the market, and we expect positive fundamentals on the basis of clearer policies by the government in the second half of this year,” said Wong.
“We are seeing that the government has been trying to move projects, and that the government is ready to do more pump-priming to encourage more economic activities,” he added.
With foreign shareholdings in a multi-year low, Wong noted that downside risk for the market is getting lower than compared to other markets, adding that the broader market is still performing, despite the downtrend in the top 30 constituents of the KLCI.
RHB regional equity research head Alexander Chia, on the other hand, said the “ingredients” for a reversal of net selling in foreign funds have yet to be seen in the foreseeable future.
He highlighted that Malaysia still lacks the clarity on government policies, and is still unattractive in terms of valuations and corporate earnings growth.
“I would say that this is a perfect storm from a foreign portfolio manager’s perspective. They are to remain cautious as the visibility of growth is just not there,” said Chia.