PETALING JAYA: Malaysia is no longer an “isolated market”, as the strong inflow of foreign portfolio money has boosted turnover velocity to 60% currently from around 30% in March last year, said Citigroup Investment Research.
The higher velocity, however, had led to increased volatility in the market, which was a “relatively new phenomenon'' for Malaysian investors, Citigroup said in a report issued on Tuesday.
Research head Choong Wai Kee told StarBiz: “Foreign investors had previously not actively considered Malaysia as an investment destination, but since the fourth quarter of last year, we are seeing foreign inflows come in.
“However, domestic investors are still questioning the sustainability of the rally,” he said.
Choong said a combination of factors could be attributed to the encouraging investment scene, including an improving macroeconomic outlook, and the high daily trading volume of between US$600mil and US$800mil, which was roughly three to four times last year's average.
The huge increase in volume, he said, could only be due to the contribution of foreign money, as strong foreign participation had lifted the KLCI by 13% in the fourth quarter of last year and a further 9.2% this year before last month's correction.
“A lack of confidence (in the market's sustainability) will result in investors trimming on market weakness. The sharp volatility yesterday and two weeks ago has made investors more cautious and take profit even on fundamentally sound companies.”
Choong said the positive correlation between the KLCI and other regional equities meant that global investors now perceive Malaysia as an “investable” market.
While market weakness presented buying opportunities, the KLCI's movement in tandem with other regional and global markets meant that investors were looking outside the country for clues on how the market would perform, he said.
“Currently, the US seems to be the driving force behind market movements, but no one knows what would happen over there in the future.
“If there are no major collapses there, global markets should recover,” said Choong, adding that for now investors could be waiting for global markets to stabilise.Latest business news from AP-Wire
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