Foreign outflows in the local equities market remain contained and have been gradually dissipating, according to analysts and market observers alike.
MIDF Amanah Investment Bank Bhd’s analyst Adam Mohamed Rahim said net foreign selling range remained well below RM200 million from the week starting July 2 until July 13, except for July 6, which saw a high net outflow of RM393.6 million, attributable to the US tariffs imposition on Chinese imports which came into effect.
For the week just-ended excluding Friday, foreign selling was below RM100 million net except on Wednesday when the local market saw a net inflow of RM71.7 million.
Hence, the total net foreign selling for the week excluding Friday stood at RM182.5 million compared with RM531.8 million net registered in the previous week, he noted.
“Moving forward, we expect foreign outflows to remain measurable barring any unforeseen circumstances and eventually foreign investors may slowly return to the Malaysian market,” he said.
For the past 10 trading days, Bursa Malaysia was on the uptrend but had succumbed to profit-taking on Friday.
Adam observed that the bulk of the support came from local institutional funds, which snapped up local stocks for seven out of nine days during the Bursa Malaysia rally recently.
“The net amount accumulated by institutional funds during that nine-day period was RM636.9 million, while foreign investors were net sellers to the tune of RM714.3 million,” he pointed out.
He noted that foreign investors had so far pulled out RM10.8 billion net since Malaysia’s 14th general election which saw a new government taking over power, while the week with the highest net foreign selling was the week ended May 18, which saw an outflow of RM2.5 billion.
However, Adam said in comparison to three other Asean markets, namely Thailand, the Philippines and Indonesia, it was noteworthy that Malaysia had the second lowest outflow after the Philippines, with a year-to-date as at July 19, 2018 amounting to US$2.06 billion or RM8.24 billion.
Thailand saw the biggest outflow of US$6.19 billion, he added.
Adam said foreign outflows in the region continued to be contributed mainly by the external front with the US-China trade war concerns being the main culprit, sending global equities into a chaotic state.
Apart from that, the issue of Brexit and ties between the US and North Korea relating to the complete denuclearisation of the Korean Peninsula, as well as the trend of monetary policies around the globe, had also contributed to the market uncertainties.
Echoing the same sentiment, Inter-Pacific Securities Sdn Bhd’s Head of Research Pong Teng Siew said he saw the severity of the outflow easing off.
Comparing to what had happened during the 2013 financial crisis which saw foreign outflow from the local equities amounting to about RM11.8 billion, he said the current level of outflow is almost equal.
“The outflow is starting to slow down and I’m not surprised if it will stop soon,” he said.
Meanwhile, Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said Malaysian equities were quite attractive from a valuation standpoint, and with the ringgit obviously undervalued.
“Hence, there is always a reason for foreign investors to come into the local bourse.
“The only concern is on the earnings prospects amid uncertainty from external developments, namely the trade tensions, as well as the potential rate hikes in the US,” he said.
On the ringgit performance, MIDF Amanah Investment Bank’s chief economist Kamaruddin Mohd Nor said the local unit had slightly weakened and broke the 4.05 psychological level, pressured by persistent strength in the US dollar.
He said hawkish comment by the Federal Reserve chairmperson Jerome Powell on the pace of US interest rates hike had given a boost to the greenback this week.
The release of US jobless data on Thursday was also positive for the US dollar and backed the Fed’s future move to gradually hike US interest rates twice for the remainder of this year.
“The dollar index was up by 0.4 percent this week and 3.3 percent thus far this year,” said Kamaruddin, adding that this had continued to pressure the ringgit which had weakened by 0.27 per cent against the greenback year-to-date.
Meanwhile, Hermana Capital Bhd’s Chief Executive Officer and Chief Investment Officer Nazri Khan Adam Khan said the local unit was expected to hover at the 4.05 level versus the US dollar next week.
"Even though the ringgit is expected to depreciate further against the US dollar, pressured by sentiment brought by the Fed’s US interest rate hike, the local unit would remain resilient supported by foreign inflow,” he added.