Foreign funds turn net buyers

Maybank IB says they have been selling local stocks continuously for three months

PETALING JAYA: Foreign funds are turning constructive on Malaysia’s outlook under the new government, according to Maybank Investment Bank (Maybank IB).

The brokerage noted the sentiment following its recent meetings with 48 institutional investors in Singapore, Hong Kong and the United States over a two-week roadshow.

Maybank IB said most questions that the foreign funds had revolved around Malaysia’s gross domestic product (GDP) growth, fiscal target and politics such as the new government’s election manifesto and stability of the Pakatan Harapan coalition. Many of the funds, especially in the US, at present have an “underweight” holding on Malaysian equities.

On Malaysia’s growth outlook, Maybank IB said it has revised down its 2018 GDP forecast to 5.1%, from 5.3% previously, in part due to measures and policies announced by the new government.

It said Malaysia’s GDP growth is expected to slow to 4.9% by 2019.

On the budget balance, Maybank IB said the country’s fiscal deficit are expected to be at 2.8% of GDP this year and 2019.

“For 2019, foreign investors’ question was on the larger gap in the government’s revenue from the full-year removal of the goods and services tax, or GST, totalling at RM44bil, and return of SST totalling RM21bil,” the brokerage said.

“Budget 2019 on Nov 2 is thus a key policy event that foreign investors will be watching out for,” it added.

On election manifesto, Maybank IB noted that about half of the 10 items for the first 100 days have been put into place so far.

There were still three other major decisions pending to date, and these include the minimum wage hike and equalisation between Peninsular and East Malaysia, review of toll road concessions and review of the Petroleum Development Act 1974.

On the stability of the PH pact, Maybank IB noted that foreign investors acknowledged the heavy task, especially over the next two years for the new administration under Prime Minister Tun Dr Mahathir Mohamad, and hopefor a stable transition to a new prime minister when the time comes.

Given the economic and political climate in Malaysia, Maybank IB said selected funds were receptive to its thematic on regulatory risk dissipating for sectors such as telecommunications and construction.

“Many were, however, still looking for growth stocks, where, within our research coverage, the technology stocks stand out,” the brokerage said, adding that Inari Amertron Bhd is one of its top buy for the market.

After three months of continuous selling, foreign investors turned net buyers of stocks on Bursa Malaysia on the last day of trading in July, buying sizable net amount of RM344mil.

Market foreign shareholding as at end-July 2018 should be slightly lower than end-June 2018’s 23.9%, MaybankIB said.

Maybank IB retained its 2018-end target for the FBM KLCI at 1,750 based on a mean valuation of 15.6 times forward earnings.

The brokerage said its views on the local market remained unchanged, as it is mindful of the external headwinds, led by the US-China trade spat, staying dominant and driving volatility.

“Markets have, so far, been sanguine on the risk, which is slower global trade and economic growth, especially in 2019,” Maybank IB said.

“Against this backdrop, we continue to recommend a trading strategy for the most of the second half of 2018, with bottom-up stock-picking (on weakness) for the longer term,” it explained.

The brokerage is “overweight” on automotive, gaming (casino), oil & gas, and technology.

It is bias on taking profits, especially on consumer stocks, given the return of the sale and service tax (SST) on Sept 1. It has also removed independent power producer Malakoff Corp Bhd from its top buy list.