DESPITE the heightened activity on the KLSE of late, the local bourse is still lagging when compared against regional markets in terms of gains since early this year. But this is cause for optimism.
Given the fact that foreign fund managers have been underweight on the local market for some time, it will not take much persuasion for them to get interested in the local market again.
The interest from foreign funds will benefit local fund managers, some of whom already have 70% equity in their portfolio.
The arrival of foreign funds could give them an opportunity to cash in, MAA Mutual Bhd chief executive officer Sazali Zainal Abdin said. I believe the situation will benefit them one way or another.
As of yesterday, the KLCI had risen only 17.5% since Jan 2, compared with 57.3% for Thailand, 46.9% for Jakarta and 29.3% for Singapore. Over the same period the Dow Jones Industrials had gone up 15%, Hong Kong's Hang Seng 25.7% and Japan's Nikkei 22.9%.
Fund managers said the recent rating upgrade by Standard & Poor's would just give them the reason to come back in full force, given the run-up in the Thailand market.
The upgrade in rating may have given foreign fund managers the reason to come in, said Sazali.
Besides the improvement in fundamentals, which reflected the overall health of the local economy, the re-rating was a significant development for foreign investors to come in, concured RAM Consultancy Services general manager Dr Yeah Kim Leng.
They are actually ruling out the political risks, he said.
He added that the timing of the rating upgrade indicated their belief that the change of Prime Minister at the end of the month would be smooth.
With current policies expected to continue, investors had added confidence to get into the local market, said Yeah.
The exuberance on the market something not seen since 1993 has pushed daily volume to more than one billion, a healthy sign that foreign funds are present.
It is understood that two of the largest local brokers CIMB Bhd and RHB Securities Sdn Bhd, which get a high percentage of foreign fund businesses have seen their daily volume from foreign buyers increasing to 50% from about 5%-10% early this year.
This shows that foreign funds are not just testing the waters but are also filling up the dam, said a fund manager at a bank-backed brokerage, noting that foreigners had also widened their portfolio of Malaysian stocks.
Another fund manager said transactions by individuals had also gone up, which reflected willingness to invest in the market.
What was even more heartening for the local market was that foreign fund participation was not only confined to index-linked counters but also lower liners and Mesdaq counters, thus increasing market depth and breadth, said analysts.
Now they are looking at macro-driven individual stocks the water, oil and gas counters, which have gone up of late, said the fund manager. These included Ranhill Bhd, Puncak Niaga Holdings Bhd, Scomi Bhd and Crest Petroleum Bhd.
Recently announced changes in shareholdings show that foreign funds have bought significant interests in the smaller companies, such as Symphony House Bhd, which is in IT-related activities.
Given the strong market interest, analysts and fund managers were united in their optimism that the market had room to move higher, the 800-level being the next immediate possibility.
MAA Mutual's Sazali said even should the KLCI rose above 800 points, the market would only be 23.7% higher than where it was early this year, still be far below other regional markets.
Yes, it highly possible to reach 800 in the near term, he said, echoing other analysts who also had similar estimates.