PETALING JAYA: As the equity markets move towards the end of the first quarter of 2021, there seems to be a glimmer of hope that foreign funds are beginning to stage a comeback in Malaysia, among other Asian equity markets.
As of March 16, foreign investors have been net buyers of local equities on Bursa Malaysia with an inflow of RM531.28mil.
Should the positive momentum persist, this may be the month that plugs the ongoing rupture for the past 22 months.
MIDF head of research Imran Yassin Md Yusof (pic) said while it was still too early to accord any sort of net buying trend from foreign investors, signs seemed to be encouraging.
“Foreign investors seem to be on track to register a net buying position and if that happens, it will be the first since June 2019.
“Having said that, we need to recognise that the sentiment is volatile at the moment and there are a number of factors that could reverse the current trend, ” he told StarBiz.
The outflow of foreign funds from the Malaysian equity market in 2020 was a massive RM25bil, which was more than double the outflow in 2019 of RM11.1bil.
It was the third consecutive year of foreign fund outflows.
The bleed did not stop in 2021 as negative sentiments prevailed, which led to an outflow of RM793.94mil and RM867.57mil in January and February, respectively.
Malaysia has registered net foreign inflows for the weeks ended March 5 and March 12 of RM285.88mil and RM240.709 respectively, after suffering massive outflows of RM984.59mil in the three weeks prior.
Year-to-date (y-t-d), foreign investors still remain net sellers at RM1.13bil.
Imran added it was possible that the current trend of inflows could be due to increased certainty of economic recovery with the vaccine rollout, the market’s valuation and rotational play.
It may be difficult for Bursa Malaysia to recoup the net selling by foreign investors last year but Imran said early signs have been encouraging thus far and may be one of the themes for the market this year.
“A notable downside risk to this that we need to be cognisant of is the trend of the US bond yield and the reaction from the US Federal Reserve which may cause further volatility in the equities market, ” he said.
Standard Chartered Bank head of fixed income, currency and commodities (FICC) investment strategy Manpreet Gill Singh (pic below) said they were optimistic on the foreign inflow trend in Asian equity markets and believe it can last on a six-to-12-month horizon, albeit with inevitable short-term pauses.
“In our view, foreign inflows are being driven by an improving growth outlook as the Covid-19 vaccination process accelerates across the region.
“There are also expectations of US dollar weaknesses, which historically, have led to greater foreign investor inflows into emerging market and Asian equities, bonds and forex markets, ” he said, adding that an additional factor was the commitment of major central banks to maintain policy support, especially in the face of the large US stimulus going through.
Among peers in the region, Malaysia is among those with the smaller y-t-d net foreign fund outflows.Bank Islam Malaysia Bhd economist Adam Mohamed Rahim pointed out that Indonesia was the only peer that has recorded a foreign net inflow so far in 2021.
Nevertheless, with the pace of foreign net selling in Malaysia slowing down with the anticipation of better economic growth, he said the total outflow for the year will definitely be less than last year.
“It may be early to conclude that foreign investors have returned to Bursa, premised on the situation that the vaccination programme is still in its early stages, risks of delays and the possible reluctance of people to undergo vaccination due to concerns of side effects.
“The nation’s political landscape is also highly fluid at the moment. Key economic and institutional reforms that may unlock further economic growth in Malaysia could face risks of delays, which may cause foreign investors to be wary of consistently increasing their exposure in Malaysian equities, ” Adam said.
In January, it was reported that Asian equity markets lost nearly US$80bil of investor capital from January to October last year, and only about US$25bil have returned to the region.