This article first appeared in Capital, The Edge Malaysia Weekly on April 22, 2019 - April 28, 2019

RHB Research Institute head of Malaysian research Alexander Chia points out that foreign interest in the Malaysian stock market would be critical for a recovery in the large-cap space, especially the FBM KLCI component stocks.

But while the country has been seeing large net outflows since last year, a research analyst with a foreign brokerage believes that a recovery for the benchmark index is in sight.

“If you look at the selling done by foreign funds since last year, I think most of those who are uncomfortable with the changes under the new government have probably sold their holdings. I think the recovery is in sight, especially with the recent announcement of the continuation of the East Coast Rail Link project at a lower cost,” he says.

From a technical viewpoint, the stochastic oscillator shows that the FBM KLCI is in an oversold position, an indication that emerged at the beginning of March, while the relative strength index also shows that the benchmark index has entered into an oversold position. Towards the end of last week, a candlestick chart indicator also showed that a bullish harami trend is emerging, suggesting that the bearish trend may be coming to an end.

Meanwhile, MIDF head of research Mohd Redza Abdul Rahman says the equity benchmark index could see a strong recovery towards the second half of this year.

“We expect a strong recovery in the second half of this year, hopefully with strong first-quarter numbers this May results season, coupled with expectations of a US-China trade deal and better macroeconomic numbers. At the moment, there are concerns about a potential rate cut as well as on the geopolitical front with general elections in Indonesia, Thailand and India,” Redza says.

The weakened ringgit and its oversold position could set the tone for the re-entry of foreign funds, but most analysts believe the negative sentiment is likely to persist in the short term in the absence of new catalysts.

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