KUALA LUMPUR: Prevailing external factors will continue to plague regional equity markets including Malaysia, creating uncertainties and causing fund managers to stay on the sidelines.
Rakuten Trade Sdn Bhd Head of Research Kenny Yee said foreign outflows exceeded RM10 billion during the May-June period, with the post-general election market experiencing net foreign selling of nearly RM7 billion to-date.
By comparison, the country recorded net foreign inflow of RM10.25 billion into equities in 2017.
“For this week alone, net selling has touched RM310.7 million (till Thursday) and we reckon these funds may continue to divest in the immediate term,” he told Bernama.
Yee said the ongoing trade spat between the United States and China was likely to be the main factor contributing to the trend.
At Friday's closing, Bursa Malaysia's key index ended sharply lower at 1,663.86 from Thursday's 1,690.95, a fall of 26.79 points.
However, Yee expressed optimism that the ‘kitchen-sinking' in the country was merely a short-term pain.
He said Malaysia was deemed the region's safe haven, with the market supported by the "big four" government-linked investment companies (GLICs), namely the Employees Provident Fund, Permodalan Nasional Bhd, the Retirement Fund Inc and Lembaga Tabung Haji.
"The total fund size managed by the four GLICs exceeds RM1.2 trillion, not to mention those from sovereign wealth fund Khazanah Nasional Bhd and its subsidiary, ValueCAP Sdn Bhd," he added.
He also believed that foreign funds were likely to take advantage of the weak ringgit, which had depreciated to about RM4.04 against the greenback from the year's highest level of RM3.86.
"Index-linked blue chips such as Telekom Malaysia, Maybank, KLK and Genting are now ripe for the picking as they are trading at attractive levels," Yee said, adding that investors could re-look at small-cap stocks like Econpile, GFM, Kelington and Mi Equipment when the market liquidity was restored.
However, he cautioned that the US remained the epicentre of global equity markets, making a stir on issues pertaining to trade tensions or its interest rate increases.
Yee also refuted speculation that the arrest of former Prime Minister Datuk Seri Najib Tun Razak would affect foreign investors' confidence in the local stock market.
Last Wednesday, Najib hit the headlines in local and foreign newspapers as the country's first ex-prime minister to be charged in court, with three counts of criminal breach of trust (CBT) and one count of abuse of power in connection with SRC International Sdn Bhd funds totalling RM42 million.
Meanwhile, Hermana Capital Bhd Chief Executive Officer and Chief Investment Officer Datuk Dr Nazri Khan Adam Khan said global equity sentiment continued to be affected by worries on trade tensions between the world's two largest economies and the possibility of a second round of tariff imposition.
“Anytime now, they will be going for the second round of tariff imposition worth US$50 billion,” he said.
The US began imposing new tariffs on US$34 billion of Chinese imports on Friday and Beijing retaliated with its own set of tariffs rate on US goods, equalling that of Washington.
RHB Banking Group Chief Economist and Head of Research, Dr Arup Raha, said domestic buyers were seen mopping up stocks sold by foreign funds but with little appetite to be overly aggressive.
“Investors will likely stay risk-off with the tightening in monetary conditions globally; hence, emerging market (EM) outflows are not expected to reverse in the near-term,” he said.
However, he said, sentiment could be lifted by a de-escalation in the US-China trade conflict, a better explanation on the government's fiscal options in 2019, decisions on big-ticket infra projects and further clarity on leadership roles at government-linked companies/GLICs as well as government agencies.
Commenting on the ringgit's performance, Arup said all Asian currencies fell against the greenback over the week despite the broad US Dollar Index being slightly lower over the same period. However, the ringgit actually fared better than most of its peers.
“The ringgit fell 0.19 per cent week-on-week (w-o-w), only behind the Taiwan dollar and the Philippine peso, excluding the Hong Kong dollar which is pegged to the greenback,” he noted.
The biggest themes this week were the US-China trade war rhetoric and Chinese yuan movements (-0.64 per cent w-o-w against the dollar), while the overarching driver of tighter US monetary policy continued to exert influence over emerging-market assets, he said.
“Despite Malaysia's reliance on trade and its economic ties with China, investors are still sticking with the strong and resilient growth story in Malaysia.
“We also do not see the market pressuring Bank Negara Malaysia to hike rates at this juncture, unlike its neighbour Indonesia,” Arup said.
He noted crude oil prices, which were a traditional ringgit driver in the past, appeared to have little impact on the currency this week.
“We forecast the ringgit's performance to be comparable with the rest of the region over the second half of this year, eyeing the 4.10 level (versus the greenback) for end-2018,” he said.
Arup said despite weakness in Malaysia's external fundamentals, Malaysia's full-year growth should remain robust while deep domestic liquidity should support the broader market even if foreign investors pared down their holdings.
He added the fiscal budget, likely to be tabled in November, would be key to watch, both to gauge the government's ability to stick with its 2.8 per cent deficit target for 2018 and the 2019 plans.- Bernama
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