Why money is going to Manila

THE foreign selldown on the Bursa Malaysia does not seem to be slowing down.

It continues unabated in the year-to-date (YTD) period and selldown figures by this group of investors are at historical highs.

Money movement in the broader region also indicate funds are generally selling down their holdings in Asia.

There was, however, an interesting development for fund flows in the Philippines for three weeks in March. Foreign funds saw net inflows there, while the rest of Asia including Malaysia was mostly witnessing net foreign outflows.

Economic developments in the archipelago country may hold clues as to how foreign investors, sometimes termed as hedge funds or the big money, view markets.

While these could be short-term hot money flows, which are fleeting, some of these may also be funds that would stay in the country for the longer term.

Perhaps this may point the way forward as to how Malaysia can position itself apart from the competition to court foreign inflows again.

It is also noteworthy that the Philippines is now one of the top growing economies in Asean and Asia, with an average annual economic growth rate of around 6%, which may also help explain the recent money movements into that country.

With a population of some 116 million people now, the country also has a strong base for investors seeking domestic demand-driven growth apart from other major economies.

According to analysts’ estimates, 70% to 75% of its gross domestic product (GDP) is driven by domestic demand, in stark contrast to the usual export-driven economies of Asean.

The Philippines gained inflows just before US President Donald Trump announced the imposition of his reciprocal tariff upon the rest of the world and risk sentiment was tepid to cautious.

MIDF Research had noted the Philippines’ resilience in gaining foreign fund inflows in the second week of March despite a little political turbulence due to the arrest and deportation of former President Rodrigo Duterte and the impeachment of Vice President Sara Duterte.

The research house highlights the country’s strong credit ratings and steady economic fundamentals, which continue to attract foreign investments.

Among other factors which may have attracted foreign flows include the archipelago’s status, perceived or otherwise, as a close ally of the United States in this region.

Apart from that, MIDF Research attributes foreign fund inflows continuing in the third week of March to its regulator’s commitment to encourage further public listings on the Philippine Stock Exchange, which has historically struggled with low trading volumes and few new listings.

The Philippines’ securities regulator has said it is open to reducing the 20% minimum public float requirement for companies launching initial public offerings (IPOs), allowing firms to increase their float later on.

Indeed, such policies can help stimulate the investing environment in the country’s capital markets amid a broader global tone of protectionism.

In Malaysia, the net foreign selling of equities continued for the 25th consecutive week in the week ended April 11, which saw the highest weekly net outflow for the year so far.

A net outflow of RM1.97bil was registered in the week, which was higher than the RM426.6mil recorded in the previous week, data compiled by MIDF Research shows.

This increased this group of investor’s year-to-date net sell value to some RM12.36bil.

“We are looking at a very severe selldown by foreign funds now in terms of magnitude. Unfortunately, foreign funds shareholding is at 19.3%, which is a historically low level.

“If we want the share market to perform, foreign funds will need to return again,” the chief executive officer and founder at fund management company Tradeview Capital Sdn Bhd Ng Zhu Hann tells StarBiz 7.

“Most of these are due to concerns on US reciprocal tariffs. We are a risk market and there’s a preference for safe haven assets such as US Treasuries with more stable returns,” Ng adds.

To court this group of investors again, it is necessary to ensure a wholesome participation by all investors in the local equity market.

Ng says it may be a good move if the country could restrategise and target longer term foreign fund flows.

He suggests the government, through the government-linked investment companies (GLICs), could encourage partnerships between foreign fund managers and local ones.

“If so, these funds cannot be just thematic or hot money. I believe the theme in the last major inflow was artificial intelligence (AI) and data centres, which put Malaysia’s stock market on fund managers’ maps.

“At the tail end of the fourth quarter we saw them taking profits and selling, until now, due to risk sentiment,” Ng says.

He thinks foreign funds taking up strategic long-term stakes could be preferable since hot money flows are usually “speculative” and fleeting.

It perhaps can start with the government not just marketing the country on an investment theme alone – such as AI, Ng says.

“To sustain these money flows – or foreign fund interest – it is also important that the country is known for its other sectors such as commodities, manufacturing, consumer or retail, as we are a diversified economy.

“The marketing efforts shouldn’t just be focused on the flavour of the day,” Ng says.