Foreign selling tapering on Bursa
Market showing signs it is picking up momentum
PETALING JAYA: Could the tide be turning, following two months of foreign fund withdrawal from Bursa Malaysia?
Foreign selling is now tapering and trading activity appears to have increased.
Last week, the FBM KLCI along with other regional indices started to show signs of life.
The FBM KLCI surged 3.49% to end last week at 1,722 points, which is its first weekly gain after four weeks and the largest since October 2015, said MIDF Research. The ringgit, however, depreciated by 0.27% during the week to RM4.051 against the US dollar.
Yesterday the FBM KLCI closed 4.74 points up to 1,726.67 points on a volume of 2.04 billion shares.
The better sentiment could be partly due to the reporting season in the US, which started last Friday.
JPMorgan, Citigroup and Wells Fargo kicked off the earnings season for the largest US banks on Friday, revealing another quarter of strong growth despite a small increase in lending.
Rakuten Trade Sdn Bhd vice-president (research) Vincent Lau said the foreign outflows had been tapering as the country’s economy appears to be improving in the eyes of investors.
“We have seen projects being called off, key government-linked company people resigning, and new faces being put in place.
“With the go-ahead on the LRT3 project, notwithstanding the reduced cost from RM31.65bil to RM16.63bil, this shows that the gov- ernment is very much pro-growth,” said Lau.
On this note, Lau added that Rakuten is recommending investors to take a position ahead of an impending turn sometime in the fourth quarter.
Another development to watch out for would be Prime Minister Tun Dr Mahathir Mohamad’s impending visit to China sometime next month.
The purpose of the trip is to discuss with Chinese President Xi Jinping about the “unfairness” in the contracts agreed to by the previous administration.
Council of Eminent Persons head Tun Daim Zainuddin is also going to China, and is believed to be going to negotiate on some contracts.
“The market wants certainties. Once we get certainties on the Chinese contracts and the state of the relationship, we can see a rally in the market,” said Lau.
He added that interest rate hikes in the US had also been priced into the market. Once fears of the trade war start to abate, the market may once again see more excitement.
Meanwhile, MIDF said net outflows from Bursa Malaysia continued to narrow for the third straight week.
“Based on preliminary data from Bursa, which excluded off-market deals, the amount sold by global funds last week receded to RM531.8mil net. This is the lowest weekly foreign attrition recorded since the week ended May 11, 2018,” said MIDF.
Despite the threats of the US to impose tariffs on an additional US$200bil worth of Chinese imports, market sentiment in Asia improved on Wednesday, buoyed by overnight gains on Wall Street following PepsiCo’s solid quarterly results.
This then capped the amount of foreign outflows on that day, which totalled RM112.9mil net.
“It was notable that foreign net outflows declined below RM100mil on Thursday and Friday to the tune of RM52mil and RM57mil, respectively. The slowdown in foreign net selling was mainly due to the greenlight given by the government for smaller-scale LRT3 projects, and the possibility for a trade negotiation to resume between Washington and Beijing,” said MIDF.
Malaysia still has the second-lowest foreign net outflow in Asean worth RM8.06bil after the Philippines on a year-to-date basis.
Meanwhile, Kenanga technical analyst Nor Nazirah Mohamed said the technical outlook of the index has turned increasingly positive since it overcame the previous resistance level of 1,720.
“This is further supported by bullish momentum indicators currently trending upwards while trading volume is notably stronger than average. We expect an eventual move towards 1,760, where a decisive breakthrough could see the index on a higher note towards 1,790,” she added.
Looking ahead, markets will also be paying attention to what Federal Reserve chairman Jerome H Powell says when he faces questions about interest rates, inflation forecasts, the health of the economy and President Donald Trump’s trade war when he testifies before a Senate committee today and a House committee tomorrow.