Malaysian equities remain attractive | The Edge Markets

KUALA LUMPUR: Despite foreign funds selling off RM63.1 million worth of Malaysian equities last week amid mounting geopolitical tensions, market analysts are convinced that Malaysian stocks remain attractive to foreign investors in the medium term.

The analysts do not expect the tensions between the US and North Korea to have a significant impact on the market.

Danny Wong, chief executive officer of Areca Capital Sdn Bhd, said emerging markets such as Malaysia continue to be attractive for investors given the synchronised growth seen globally.

“In the medium term, judging from the macro data that was released globally including in the US and Malaysia, growth continues to be seen and this will drive the export countries, especially emerging markets which generally outperform the developed markets,” Wong said in a telephone interview with The Edge Financial Daily.

He also said that with the US market at a high valuation currently, foreign investors are likely to turn to the emerging markets and that includes Malaysia.

Asked about the risk arising from the worsening relationship between Washington and Pyongyang and the effect this will have on US-China trade, Wong said it was unlikely to be significant.

“I think it is unlikely for us to see a significant change in the policy between US and China,” he said.

Mercury Securities Sdn Bhd research head, Edmund Tham, also thinks that the rising geopolitical tensions between the nuclear superpowers will not have any major impact on the local market.

“What’s probably more important to the local market is the oil price, which tends to correlate with the FBM KLCI,” said Tham. “It will also affect the ringgit. So when the ringgit shows strength, foreign investors will also be more keen to invest in the country, especially since the ringgit has been at [a] low level for a long time.”

Asked about the effect the Qatar crisis will have on the Opec deal to cut oil production, Tham said he would not be able to predict that. He, however, emphasised that the production cut by Opec only has a limited impact on oil prices as US shale oil producers tend to fill the gap left by Opec.

In the near term, Tham said election play and infrastructure projects will continue to be the theme for investors. He added that the upcoming earnings season will be crucial as investors will watch and see if the growth story remains intact for companies in Malaysia.

Another head of research who wanted to remain anonymous agreed with Tham, saying a strong earnings season would drive the market higher.

“I think we have been looking at recovery in the first quarter of this year and the market is anticipating the results to continue to show growth in the second quarter. The second half would then likely see growth moderate. But the market has run ahead of that and if the second quarter meets the expectations, we should see foreign investors continue buying into Malaysian equities given the weak ringgit and growth prospect,” he said.

He highlighted that Malaysia has seen more foreign fund inflows compared with other emerging markets this year following a lacklustre performance in the last two years, which saw both the FBM KLCI and ringgit offering attractive valuations.

According to MIDF Research, foreign funds were net sellers in three out of five trading days last week.

“Foreign selling peaked on (last) Friday as foreigners disposed RM93.5 million net, the highest in a day since July 5,” the research house said in a report yesterday. “The attrition on (last) Friday coincided with the (FBM) KLCI dropping below the 1,770 points at close and the ringgit hitting a one-month low.”

MIDF Research said the weekly outflow was in line with those seen by regional peers notably South Korea, Indonesia and Taiwan.

So far, foreign investors have only been net sellers for six weeks this year compared with last year’s 27 weeks.

“Despite last week’s foreign withdrawal, the cumulative year-to-date inflow was slightly unchanged at RM10.7 billion net compared with RM10.8 billion net in the preceding week.

“Foreign participation rate turned sluggish as the foreign average daily trade value (ADTV) declined 31% from RM895m in the prior week to RM615 million, the lowest since the first week of 2017,” said MIDF Research.

The research house said retail participation remained vibrant. Retail ADTV, it said, remained above the RM800 million mark as it only decreased by 0.5% from RM887 million to above RM882 million last week.

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