Foreign net outflows to recover in 2H24

Inflows likely after Fed’s rate cut, say experts

PETALING JAYA: Malaysia’s year-to-date net foreign outflow, which has grown to Rm1.21bil, is not something to be worried about, say analysts.

The net selling trend by foreign investors on Bursa Malaysia has now stretched into its sixth consecutive week at Rm336mil for the week ended April 5.

However, Rakuten Trade head of equity sales Vincent Lau said the situation is likely to recover in the second half of this year, which is only three months away.

According to Lau, foreign portfolios have been on the slower side due to the US market remaining fairly robust, which has resulted in a possible delay of rate cuts by the Federal Reserve (Fed).

“We are still expecting a rate cut but given the data, it seems less likely that it might take place in June, as expected.

“Once that happens, we can expect to see more inflows coming in because it will make the emerging markets like ours more attractive to investors,” he told Starbiz.

The last time such an outflow streak was recorded was in the middle of 2023, when foreign investors sold for 12 weeks straight.

Lau added the outflows could also have been due to some portfolio realignments.

“Right now, it’s more of a wait-and-see approach. For the next few months, I do not expect to see any major outflows but we’d be looking at about the same levels for now,” he said.

From an economic standpoint, Lau said the first quarter of this year has been relatively good.

“The FBM KLCI did well as it ended the last trading day of the quarter on a strong note at 1,536.07 points,” he said.

Meanwhile, MIDF Research analyst Royce Tan said he expects to see net outflows for the time being but remains sanguine that foreign funds will return to the market, with the expectations of a strengthened ringgit being among the catalysts.

He said other than an expected delay in the Fed’s rate cut, a rotation of funds among foreign investors within Asian countries to other sectors like technology and chips had seen countries like South Korea and Taiwan recording strong net inflows.

“Malaysian equities have been quite robust for the first quarter as all the sectoral indices have advanced, so we believe profit taking could be among the factors that have led to the net outflows in Malaysia we have seen in recent weeks,” he noted.

Moreover, Tan said there were some bright spots in terms of sectors and their potential.

He noted for the first quarter of 2024, the sectors of interest among foreign investors were utilities (Rm801.1mil), property (Rm685.8mil) and construction (Rm276.7mil).

He said these were among the three main sectors that they promoted in their 2024 market outlook.

“We believe the prospect of an upside still exists within the construction and property sectors, the former due to the strong development expenditure by the government and the latter due to the improving outlook amid the downtrend in overhang.

“While we have downgraded the power sector to ‘neutral’, we continue to favour the engineering, procurement, construction and commissioning sub-sector, which will be a beneficiary of the National Energy Transition Roadmap, backed by the massive potential of order book expansion,” Tan said.

The report had also noted the sectors with the highest outflows included financial services at Rm417mil, industrial products and services at Rm46mil and consumer products and services at Rm29.9mil.

There was net selling last Monday, Wednesday and Friday at Rm99.4mil, Rm253.4mil and Rm132.7mil, respectively.

Last Tuesday and Thursday, there were net buys of Rm134.3mil and Rm15.2mil, respectively.

“In contrast, local institutions persisted in their net buying trend for the sixth consecutive week, with a net purchase of Rm557.4mil.

“They only net sold Rm81.3mil on Tuesday but were net buyers for the rest of the week, amounting to Rm638.7mil,” the report said.

“For the next few months, I do not expect to see any major outflows.” Vincent Lau