MIDF: Outflows remain contained, gradually dissipating

KUALA LUMPUR: Foreign outflows from the equity market remain contained and have been gradually dissipating, said analysts and market observers.

MIDF Amanah Investment Bank Bhd analyst Adam Mohamed Rahim said the net foreign selling range remained well below RM200 million from July 2 to 13, except for July 6 which saw a high net outflow of RM393.6 million, attributable to the United States tariff 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 market saw a net inflow of RM71.7 million.

Hence, 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, said Adam.

“We expect foreign outflows to remain measurable, barring any unforeseen circumstances, and foreign investors may slowly return to the Malaysian market.”

For the past 10 trading days, Bursa Malaysia was on the uptrend but succumbed to profittaking on Friday.

Adam said the bulk of the support came from local institutional funds, which snapped up local stocks for seven of nine days during the recent rally.

“The net amount accumulated by institutional funds during that nineday period was RM636.9 million, while foreign investors were net sellers to the tune of RM714.3 million.”

He said foreign investors had pulled out RM10.8 billion net since the 14th General Election, while the week with the highest net foreign selling was the week ended May 18, which saw an outflow of RM2.5 billion.

Adam said in comparison to three other Asean markets, namely Thailand, the Philippines and Indonesia, Malaysia had the second lowest outflow after the Philippines, amounting to US$2.06 billion (RM8.24 billion) as of Friday.

Thailand saw the biggest outflow of US$6.19 billion.

Adam said outflows in the region continued to be caused by the external front.

Inter-Pacific Securities Sdn Bhd research head Pong Teng Siew said the severity of the outflow is easing off.

Comparing to what happened during the 2013 financial crisis, which saw foreign outflow from 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 won’t be surprised if it stops soon.”

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said Malaysian equities were quite attractive from a valuation standpoint.

“Hence, there is always a reason for foreign investors to come into the local bourse.

“The only concern is the earnings prospects amid uncertainty from external developments, namely trade tensions as well as the potential rate hikes in the United States,” he said.

On the ringgit’s performance, MIDF Amanah Investment Bank chief economist Dr Kamaruddin Mohd Nor said the local unit had slightly weakened and broken the 4.05 psychological level, pressured by persistent strength in the US dollar.

He said the hawkish comment by Federal Reserve (Fed) chairman Jerome Powell on the pace of US interest rate hike had given a boost to the greenback last week.

The release of US jobless data on Thursday was also positive for the US dollar .

“The dollar index was up by 0.4 per cent last week and 3.3 per cent 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.

Hermana Capital Bhd chief executive officer and chief investment officer Datuk Dr Nazri Khan Adam Khan said the local unit was expected to be around the 4.05 level versus the US dollar this week.

“Even though the ringgit is expected to depreciate further against the US dollar, it would remain resilient, supported by foreign inflow.”

We expect foreign outflows to remain measurable, barring any unforeseen circumstances... ADAM MOHAMED RAHIM

MIDF Amanah Investment Bank Bhd analyst