KUALA LUMPUR: The fund flow picture for the country appears to be soft on the surface.
Data showed foreign funds have been net selling Malaysian stocks and total foreign shareholdings on Bursa Malaysia are now at near historical lows.
This net foreign selling trend has not abated despite the FBM KLCI hitting its recent multi-year low and valuations are still considered to be at the lower end of historical averages by most fund managers.
Based on the latest data available, foreign investors held some 19.6% of Bursa Malaysia’s market capitalisation as at end-February 2025.
This is just 0.2 percentage points above the all-time low of 19.4% in January 2025, which was the lowest since data became available in January 2007.
Factors that have been cited for this continued outflow of funds include the uncertainty surrounding the potential tariffs by the United States that could upend the macro economic picture in Malaysia.
US president Donald Trump is set to announce country-based tariffs today following several weeks of study and research on this matter since he took over mid-January 2025.
Investors are bracing that the impact from this announcement could particularly be more pronounced in the technology sector.
This is given the industry is heavily involved in the supply chain for United States-based companies which outsource some of their manufacturing work here.
It is not a surprise then that technology stocks as a whole saw the biggest price correction of some 23.4% in the period until March 21.
This is according to data compiled by CIMB Securities.
Foreign investors extended their net selling streak on Bursa Malaysia for the 22nd consecutive week, registering a net outflow of RM1.25bil in the week ended March 21.
This was a slight decrease from the RM1.34bil outflow recorded in the previous week.
Foreign net sell flows declined 6.8% week-on-week to RM1.25bil, raising the year-to-date net sell until March 21 to RM8.8bil.
Notably, CIMB Securities pointed out the most significant foreign net sell occurred last Wednesday with RM483.7mil sales, following the strong sell-off in the Jakarta Composite Index (JCI) recently.
Indonesia’s benchmark JCI dropped by as much as 7.1% at one point then recovered to close 4.9% lower.
It was the steepest intraday decline since 2011 for the JCI, an event which also triggered circuit breakers.
But according to wire reports, the sell-off was due to a combination of several factors including concerns over president Prabowo Subianto’s populist measures, forced liquidations and uncertainties over the finance ministry’s leadership.
Given this, it is unlikely to have a contagion effect on the region including Malaysia despite foreign net sales on the day showing an anomaly.
“In the week ended March 21, the FBM KLCI fell 0.4% week-on-week to 1,505 points, marking its fifth consecutive weekly decline as foreign investors continued to offload Malaysian equities.
“Selling pressure from foreign investors intensified after the market reopened on Wednesday (March 19), following the Nuzul Al Quran holiday on March 18.
“This was likely triggered by the sharp decline in the JCI on Tuesday, driven by concerns over the Indonesian government’s fiscal direction, economic outlook, and uncertainty surrounding the potential departure of its finance minister,” CIMB Securities said in its report.
It is to be noted that the foreign net selling trend is not isolated to Malaysia alone.
Foreign investors have also been mainly net sellers in the wider Asian region.
“Foreign investors continued to net sell for the fourth consecutive week of the eight Asian markets that we track, with a total outflow of US$564.9mil last week,” said MIDF Research.
It is noted that Indonesia had registered its ninth consecutive week of foreign outflows, totalling some US$432.1mil.
Thailand, meanwhile, recorded a US$103.9mil net outflow, extending its losing streak to four weeks until the week ended March 21.
Data for the previous week ended March 28 is not yet available due to the Hari Raya break.
Amid broad-based fund flow weakness, MIDF Research pointed out that the only sector that recorded net foreign inflows in the week ended March 21 was the plantation sector totalling some RM2.4mil.
“Meanwhile, the top-three sectors that recorded the highest net foreign outflows were financial services at RM609.7mil, industrial products and services at RM167.9mil and consumer products and services at RM148.4mil,” it said.
Analysts said it is quite likely the near-term fate of foreign flows on Bursa Malaysia will by and large hinge on the announcement by the United States that will be made today evening.
In its report, Kenanga Research cautioned investors to be more mindful of high volatility sectors.
However, it has conviction that bargains may be present in banks, planters and the construction industries.
“Asean markets have seen foreign fund outflows, with the FBM KLCI and FBM Small Cap indices respectively lower by 6.5% and 13% year-to-date.
“The indirect effect on global trade is harder to gauge, and we would limit downside for now by curtailing exposure to segments with high volatility, as potential tariffs loom,” Kenanga Research said.
