KUALA LUMPUR: Investors should watch whether foreign funds continue to favour defensive and commodity-linked sectors while reducing exposure to financial stocks to gauge whether a clearer rotation is taking shape, according to Moomoo Malaysia.
The investment platform said the composition of foreign flows in the coming weeks would be more telling than the headline net figure.
A continued preference for plantations, utilities and healthcare, coupled with selling in financial services, could indicate that foreign investors are reducing exposure to interest rate and ringgit-sensitive sectors.
“A repeat would confirm that overseas investors are deliberately lowering their exposure to rates and the ringgit rather than reacting to a single week, which tells you where the near-term pressure sits and where the shelter is.
“If the pattern scrambles, last week was noise and the defensive tilt was nothing to read into,” Moomoo said in a commentary.
It said investors should also keep a close eye on the ringgit and the US interest rate outlook, as a strong dollar and elevated US yields could continue to influence foreign positioning in Malaysian equities.
“A dollar that stays strong and US yields that stay high keep the pressure on foreign flows and tend to favour exporters and dollar-linked earners over domestic, rate-sensitive sectors.
“Watching the ringgit against the dollar from week to week and noting whether the signals out of the US point to more tightening or a pause gives a plain read on which way the wind is blowing for the sectors that moved,” it said.
Such conditions could favour exporters and US dollar-linked earners over domestic, rate-sensitive sectors, it added.
Retail participation will also be important, with local retail investors having remained net buyers for four consecutive weeks even as institutional investors sold.
Moomoo said investors should assess whether retail buying continues to provide support if foreign selling resumes, as well as which sectors and stocks are attracting that demand.
The outlook follows a week of substantial repositioning by foreign investors across Bursa Malaysia.
Foreign investors recorded net purchases of RM127mil last week, ending six consecutive weeks of net selling, but Moomoo cautioned against interpreting the figure as a broad return of foreign funds.
Foreign average daily trading value jumped 41.3% week-on-week, pointing to heavier trading in both directions.
Domestic institutions, meanwhile, sold a net RM368mil for a second consecutive week, while retail investors bought a net RM241mil for a fourth straight week.
Moomoo said Malaysia's RM127mil inflow should also be viewed in a regional context, as foreign investors continued to withdraw funds from Indonesia, Thailand and the Philippines, while Vietnam was an exception.
It noted that foreign ownership of Malaysian equities had fallen to a record low of about 18% last month, making one week of net buying a relatively small shift in the broader trend.
A sustained pattern of foreign buying in defensive and commodity-linked stocks, coupled with selling in financials and continued retail support, would provide a clearer indication that a more meaningful reallocation is underway, Moomoo said.
