PETALING JAYA: Fund flows into local capital markets are expected to remain volatile as investors focus on looming US sectoral tariffs on Malaysia’s pharmaceutical and semiconductor goods.
United Overseas Bank (M) Bhd (UOB) expects capital flows into Malaysia and other emerging markets to remain volatile, with investors continuing to rotate their funds across sectors based on each country’s resilience to US tariffs and shifts in trade policy.
UOB said investor attention is now turning to sector-specific levies by the United States and a potential 10% surcharge on Brics member countries and their allies.
“Other key near-term issues include US-China trade negotiations, the US Federal Reserve’s policy independence and its rate trajectory,” UOB said in a research note.
UOB added that lingering tariff and trade uncertainties would continue to weigh on the ringgit till the end of the year before the currency regains strength from the first quarter of next year (1Q26).
UOB projects the ringgit strengthening against the US dollar to RM4.19 in 2Q26 from RM4.20 in 1Q26 and RM4.23 in 4Q25 and RM4.27 in 3Q25.
Analysts noted that July was the second consecutive month foreign investors continued to pare their holdings of Malaysian equities and debt.
In its weekly fund-flow report, MBSB Research said foreign fund outflows from Bursa Malaysia in July had extended into August.
In the week ended Aug 8, foreign investors extended their net selling of Malaysian equities to fifth consecutive week, registering a net outflow of RM1.14bil.
This was three times higher than the previous week’s outflow of RM378.1mil.
Foreign investors were net sellers on every trading day, with outflows ranging from RM145.6mil to RM318.1mil.
“The largest outflow was recorded last Tuesday, followed by last Thursday with RM291mil, last Monday with RM205.7mil and last Wednesday with RM174.7mil, while last Friday recorded the smallest outflow.
“The only two sectors that recorded net foreign inflows last week were industrial products and services (RM62.7mil) and transportation and logistics (RM36.2mil).
“The top three sectors that recorded the highest net foreign outflows were financial services (RM344.3mil), healthcare (RM239.1mil) and utilities (RM210.2mil),” said MBSB Research.
The selling pressure is also present in bonds.
Maybank Investment Bank Research (Maybank IB) said moderate selling of ringgit bonds continued in July for a second consecutive month, driven in part by a rebound in the greenback.
Outflows totalled RM5.5bil from June’s RM5.4bil, although on a year-to-date basis, flows stayed positive at RM15.9bil from a peak of RM26.9bil in May.
Maybank IB said foreign holdings of Malaysian Government Securities and Government Investment Issues eased to 21.1% in July from 21.8% in June, while across Asean the picture was mixed, with Indonesia attracting inflows and Thailand experiencing outflows.
