Weekly foreign outflow hit RM1b on discouraging local support

The near absence of growth indicates that local retail investors had little cash to keep any market rally going


The lukewarm attitude of local depositors continues to drive foreign investors out of Bursa Malaysia for the second consecutive week, with the net selling by the latter rising to nearly RM1 billion last week as rebound expectations failed to materialise.

Foreign investors sold on every single trading day last week, bringing foreign outflows to RM967.3 million from RM477.7 million the previous week — the highest attrition recorded since the week ended Nov 18, 2016, an MIDF Research report yesterday noted.

Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew attributed the rush of foreign outflow to the lack of enthusiasm of local investors in the equity market.

“Foreign investors are focused on selling because locals are not buying. They don’t want to buy alone and at the moment, no one is buying on the other side when they are selling,” Pong told The Malaysian Reserve.

He said the near absence of growth reflected in banking accounts indicated that local retail investors had little cash to keep any market rally going.

“There isn’t a lot of money to build on for retail investors to invest, so they stay out. If you look at the trend in fixed deposits in savings account, the growth was 0% year-on-year in July and 0.5% in August. If there isn’t any growth there, it means there is no money to spend,” Pong said.

Foreign investors had been selling for nine trading days straight as of yesterday, the longest selling spree in 10 months.

Foreign attrition peaked last Tuesday with a heavy disposal of RM1.1 billion worth of stocks coinciding with North Korea’s perception of US President

Donald Trump’s Twitter comments as a proclamation of war. The MIDF report noted on a quarterly basis, funds into Malaysia experienced a reversal of trend in the third quarter (3Q) as foreign net outflow stood at RM558.3 million, a stark contrast from 2Q foreign net inflow of RM4.4 billion. Pong said the lacklustre trade performance of the FTSE Bursa Malaysia KLCI (FBM KLCI) was due to poor valuations.

“The announcements in September have been very disappointing. We had a disappointing earnings season for the June quarter, and for the July quarter, it continued to be below expectations. The odds are valuations do not permit for the stock market to rally,” he said.

Affin Investment Bank Bhd director and head of equity capital markets Arvin Chia Yew Kim said there is a disconnect between gross domestic product figures and corporate earnings so far.

“The macro view is that the market is disconnected from the economic numbers. I’m not sure if corporate earnings will catch up. I guess there is a potential upside, but it is hard to put a figure on it,” Chia said.

Pong, however, was optimistic that the FBM KLCI would go up by year-end, following an extended period of decline.

“After falling for some time, it could go up. By then, it would be in a position for bargain hunting. It would be up to local institutional funds to bear the brunt of lifting but I’m not sure if they are willing to do that,” he said.