PETALING JAYA: The Malaysian equity market ran a good race in 2020, outperforming most of its Asean peers but there seems to be a disconnect with how foreign funds have reacted. Foreign investors remained net sellers for the third consecutive year and the outflow last year was more than double than that of 2019. The outflow expanded to RM24.6bil in 2020 compared with RM11bil in 2019, the largest outflow since 2015 at RM19.7bil. The vibrancy on the local bourse, with the massive participation of retail investors last year saw them absorbing the record net selling with a net buy of RM14.2bil while local institutions took on the other RM10.4bil.In terms of monthly movements, foreigners have remained net sellers of equities for 17 consecutive months, or close to a year and a half. Kenanga head of research Koh Huat Soon told StarBiz that there were reasons that foreign investors were concerned about. “Last year was a strangely good year for us because we outperformed a lot of the Asean markets but if you look back since 2010 or even before that, Malaysia has been gradually diminishing in terms of price-to-earnings, ” he said, adding that in terms of valuation, Malaysia has been derated over the past 10 years compared with the likes of Indonesia, Thailand and the Philippines. MIDF head of research Imran Yassin Md Yusof said a factor that may entice foreign investors to return to Malaysian equities could be the appreciating ringgit.“The trend appears to be pointing towards a stronger ringgit by year-end. Other factors could be stronger-than-expected economic recovery. However, this is predicated on containing Covid-19 at least until the vaccine is widely available, ” he said. Meanwhile, Koh wrote in his market strategy report on Monday that the foreign shareholding in Malaysian equities of 20.9% as of end-September was a multi-year low. He said the grouses of foreign equity investors have mainly been on issues around political uncertainties and governance, the latter which happened to be one of the reasons for the Fitch downgrade to BBB+ recently. Other factors included headwinds posed by seemingly extended weakness in commodity prices especially for oil and until early in the third quarter of last year, crude palm oil and generally unimpressive earnings per share growth over the past five years. “In at least two of the grouses, we see fair chances of an improvement. “On politics, we will see the return of political stability post the 15th general election which we expect to be held in the third quarter of 2021 as infections are likely to subside by then.On corporate earnings for which a V-shaped rebound of 43% in the FBM KLCI is expected, we see a broad-based recovery, unlike in 2020 when growth was confined only to a handful of sectors, mainly gloves and technology, ” he said, adding that 2021 should see a broadening of recovery encompassing the banking sector, utilities, construction, gaming, tobacco and brewery and oil and gas. According to CGS-CIMB Research, foreign investors sold RM596mil worth of Malaysian equities in December, although this was 43% lower than the net selling of RM1bil in November. Cumulatively since 2010, the net foreign fund outflows from the Malaysian equity market has expanded to a record RM33.4bil. The outflow trend extended into 2021 on Bursa Malaysia with a net selling of RM852.5mil on the first trading day of the year on Monday, with the lifting of the ban on regulated short selling (RSS). The research house reiterated its view that a weak US dollar could spark the return of foreign investor interest in emerging markets including Malaysia, spurring further gains for the stock market. Among key economic events that will draw investors’ attention this month are the Organisation of the Petroleum Exporting Countries meeting yesterday, Bank Negara’s monetary policy meeting on Jan 20 and the US Federal Open Market Committee meeting on Jan 27. “Investors will also focus on the market impact following the resumption of RSS, keeping pace with reports on Covid-19 cases and whether the conditional movement control order will be extended. “The market is also likely to track the reopening of schools on Jan 20 and follow political events closely, ” it said, adding that investors will also keep track of the national Covid-19 immunisation plan as Malaysia is expected to receive its first batch of vaccines next month.
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