Frankly Speaking: Foreign funds are back

This article first appeared in The Edge Malaysia Weekly, on August 30, 2021 - September 05, 2021.
Frankly Speaking: Foreign funds are back
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The week ended Aug 27 was a good one for Bursa Malaysia. Big-cap stocks staged a rally, leading the benchmark FBM KLCI to climb 72.13 points, or 4.75%, to close at 1,590.16 points last Friday.

It also marked a strong inflow of foreign funds, which typically favour index-linked stocks, particularly in the banking, plantation and telco sector indices, which rose 4.3%, 5.6% and 1.5% respectively last week.

Foreign funds were net buyers of local equities last week, with their participation rate surging to a high of 26% last Thursday. The foreign participation rate was just 17.22% in July, according to statistics by Bursa Malaysia.

Foreign participation hit a low of 12% in August last year, when retail participation intensified and propelled trading volume to an all-time high of 27.8 billion shares, driven mostly by penny stock transactions.

Coincidentally, the net inflow of foreign funds came at a time when Malaysia saw another change in government — or more precisely, the return of Umno, which has reclaimed the prime minister post it lost in the last general election.

Looking beyond that, investors’ concern over the political uncertainty seems to have eased, thanks to the cooperation between the government and opposition parties. And the pledge by newly appointed Prime Minister Datuk Seri Ismail Sabri Yaakob and Pakatan Harapan leaders to strengthen the function of parliament as a check and balance on the executive is certainly a welcome move.

This may explain why foreign funds are coming back at this time, with net buying of RM707.61 million in local equities in the first four days of the week, against RM6.71 million in the prior week.

To keep foreign funds in the local market, resilient corporate earnings, economic growth and political stability remain key.

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