KUALA LUMPUR: International funds made a comeback into Bursa Malaysia from Monday to Thursday, registering a foreign net inflow of RM56.9 million compared with last week’s total foreign net outflow of RM6.9 million.
MIDF Amanah Investment Bank Bhd Research (MIDF Research) analyst Adam Mohamed Rahim said Thursday saw the highest daily foreign net inflow of RM58.3 million during the week.
“It was ahead of the policy meeting of the European Central Bank (ECB), and taking cue from Wall Street’s rally overnight which saw the S&P 100 and Nasdaq closed at record highs,” he told Bernama.
On a year-to-date basis, he said as of Thursday, Malaysia, however, recorded a foreign net outflow of RM4.3 billion in comparison with other peers which saw foreign net inflows.
Meanwhile, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said currently, market participants are still expecting major central banks such as the US Federal Reserve (Fed) and ECB to roll out some more aggressive monetary stimulus.
“Next week, the focus would be on the US Federal Open Market Committee meeting on July 30-31, with markets expecting a 25-basis point cut in the interest rate,” he said.
However, he noted that the faster-than-expected US gross domestic product growth of 2.1 per cent for the second quarter of 2019 (analysts’ forecast: 1.8 per cent), suggested that there could be a chance for the Fed to keep the interest rate at the current range of 2.25 to 2.5 per cent.
“If this happen, equity markets in the developing economies could be negatively impacted in the short term,” he said.
Moving forward, Malacca Securities Sdn Bhd anticipated that foreign participation in the local equity market was likely to remain thin over the foreseeable future, in view of the lack of sustainable catalysts, and their absence could see market conditions staying subdued for longer.
In its third quarter (Q3 2019) market outlook report released last Friday, the stockbroking firm said foreigners were still uncertain of the country’s economic direction under the new government and are continuing to adopt a cautious stance on Malaysian equities.
“This may cause the country’s economic outlook to moderate further over the next few quarters,” it said.
To recap, Malacca Securities said after offloading some RM1.34 billion worth of Malaysian equities in Q1 2019, foreign funds remained in the net selling position, at RM3.32 billion in Q2 2019, that contributed to the weakness on the local bourse.
“This brings total net foreign fund outflow to RM4.66 billion in the first half of 2019,” it said.
In the interim, it said the unresolved US-China trade dispute would partly determine Bursa Malaysia’s direction and could also reinforce the mostly defensive trading pattern in due course.
“However, we also think that bouts of positivity may emerge if there is progress in the trade talks, and the swings could also be wide given the immense effect of the trade issue on the global equity market direction,” it added.
Meanwhile, the stockbroking firm cautioned that should the exclusion of Malaysian bonds from the World Government Bond Index (WGBI) materialise, the local bonds could be downgraded.
“This could potentially make Malaysia vulnerable to capital flight that could see further headwind on the ringgit,” it said.
Echoing the similar view, Vanguard Markets Pte Ltd managing partner Stephen Innes said the possibility of the WGBI exclusion would also risk Malaysia to lose $4-5 billion ($1=RM4.11) in foreign flows.
“But with consistent local demand and chances of a dovish shift from Bank Negara Malaysia (to maintain the overnight policy rate at the current level of three per cent), the 10-year Malaysian Government Securities yields can grind towards 3.50 per cent, which should be very supportive of foreign inflows,” he said. – Bernama
