Persistent outflow weighs on Bursa
REVIEW: Bursa Malaysia must have been an unappetising destination for foreign funds of late. The local stock exchange is seeing the double blow of an economic overhaul on the domestic front and geopolitical headwinds on the external front.
It seems as good a time as any for overseas investors to exit the market and realise profits seen over the last couple of quarters.
While local institutions and retailers pooled their confidence in the market postGE14, foreign investors had already been selling down their shares in the run-up to the election.
Post-election, the overseas traders saw more reasons to remove themselves from the local scene as the Pakatan Harapan government sorted out legacy issues of debt and malfeasance.
Nevertheless, while the dirty laundry of RM1 trillion in national debt is only now being aired, the new government remains a solution, not the cause, to the deficit. This fact should inspire confidence among investors in the days following this initial selldown.
Trading under the 1,800 level by Friday, the FBM KLCI had returned to December 2017 levels, midway through its year-end rally.
As at the previous week’s close on May 18, Bursa Malaysia had lost almost all its foreign inflows for the year. Further selling-down by foreign funds over this past week would push it to a net outflow situation, to the tune of about RM750mil as at Thursday.
Over the weekend before Monday’s market open, it seemed that the trade dispute between the US and China was finally coming to an amicable resolution. US Treasury Secretary Steven Mnuchin had said the conflict was temporarily put on hold while the two nations worked out an agreement.
Nevertheless, the optimism was tampered by a conflicting view from other parts of the White House that the US might still resort to tariffs.
Asian equity markets decided to take the positive announcement and rose higher. Bursa Malaysia was less decisive, given the gradual unfurling of developments on the local political scene. The caution resulted in a slight 0.92-point pullback to 1,853.58 on the FBM KLCI.
By Tuesday, some leads in the form of corporate earnings entered the market. Unfortunately, they would prove to be disappointing as heavyweights Telekom Malaysia and Petronas Chemicals slid on weak results.
TM led the FBM KLCI’s declines, sliding 50 sen or 11% to RM4.20 as it announced 32% lower net profit for the quarter. The benchmark index slid 8.55 points to 1,845.03, hovering near a supporting level of 1,842.
The shock to the market came in the form of newly-minted Finance Minister Lim Guan Eng’s revelation that the national debt stood at over RM1 trillion. The announcement was not conducive to positive fund flows and the market fell through on Wednesday, quickly breaching supporting levels in early morning trade.
By 10.20am, the FBM KLCI shaved off 20 points to 1,824, a broad-based selldown, punctuated by sharp declines in Axiata and CIMB. Axiata lost 64 sen or nearly 13% to RM4.43 as widening losses in Idea Cellular eroded profits.
Crossing the 1,825 mark, the decline quickened towards the critical 1,800 level. At 5pm, the index was 40.78 points lower at 1,804.25.
Thursday saw a continuation of the selldown as as banking stocks Maybank and Public Bank weighed heavily on the index. While news of Maybank’s debt exposure to embattled Hyflux in Singapore may have contributed to the decline of the banking heavyweight, the overall market seemed intent to retreat on the lack of positives on the local scene.
Dropping 28.59 points to 1,775.66, the FBM KLCI had returned almost to the year’s low on Jan 2.
On Friday, a relief rebound took over the market as buying ensued on some heavyweights that had been sold down previously. At 5pm, the index was 21.74 points higher at 1,797.40.
Statistics: On a Friday-to-Friday basis, the major index was down 57.1 points, or 3.1%, to 1,854.50 points. Total turnover for the trading week stood at 12.9 billion shares amounting to RM15.95bil compared to 20.14 billion shares worth RM21.61bil a week earlier.
Outlook: Foreign funds leaving the local equity market remains the week’s trading theme. The high debt that the current ruling government has to contend with comes amidst a declining outlook in emerging markets as the “Goldilocks” growth story appears to have all but ended. It is expected to weigh on market sentiment over the ensuing days even as the Government winds down the 1MDB debacle and attempts to make up for lost income from zero-rating the goods and services tax.
Over the immediate term, there looks to be few compelling reasons for the fund flows to change direction, given that a Fed hike in interest rates in June looks all but certain. The ringgit, which has been on a slide since early April and stands now at 3.98, looks set to weaken to the 4.0 level against the greenback.
As expected, the technicals are looking bearish with the slow-stochastic starting a return from oversold territory.
The FBM KLCI is now resting close to the 1,800 key level, although a sustained rebound would take it to the 1,825 level. To the downside, support is pegged to 1,760, with the next support at 1,735.