Malaysia 2nd in foreign sell-off after Indonesia

by DASHVEENJIT KAUR / pic by TMR filepic

Malaysia’s equity sell-off by foreigners in September was the second-highest after Indonesia among Asean countries, as investors shift their wealth to markets like the US.

The recent sell-off has lead to foreign net buying of Malaysian equity to stand at RM10.1 million year-to-date (YTD).

Maybank Investment Bank Bhd (Maybank IB) analyst Wong Chew Hann said foreigners dumped a substantial amount of equities in the last eight trading days of September 2017, resulting to an overall net sell position for the month.

“The last eight trading days of September (Sept 19-29) saw a total of RM1.5 billion of foreign net sell of Malaysian equities which brought the overall position for the month to a net sell of RM800 million.

“September represents the second consecutive month of foreign net sell after January to July 2017’s net buy, resulting to a YTD foreign net buy tapering to RM10.1 billion,” Wong said.

However, she said Malaysia’s foreign net buy as of the start of October is still the highest among emerging Asean countries.

Wong said profit-taking by foreign investors could continue in the near term and would limit the upside potential for the market.

“Stocks with sizeable foreign shareholding and share price rise for the YTD are more vulnerable,” she noted in a recent research report.

According to Maybank IB, the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) has gained 6.9% YTD, 13.7% in US dollar terms.

“Of the stocks under our coverage, 41% have outperformed,” he said but the research house has not changed its end-2017 FBM KLCI target.

For the ringgit, Maybank IB’s foreign-exchange research expects the local unit to end 2017 at RM4.25 and strengthen to RM4.05 next year.

“We reiterate our long standing bias that the ringgit remains fundamentally undervalued.

“Our fair value estimate (which takes into account interest-rate differential, inflation differential, current account differential and reflation variables) puts the ringgit at the RM3.70 level,” it said.

The research house had previously said that ringgit weakness was temporary and was not a reflection of the underlying fundamentals.

“We believe stability is gradually returning to ringgit as political and contingent liability risk subsides, fiscal consolidation gains traction, oil prices continue to stabilise and uncertainty subsides.

“We believe ringgit range of RM4.20 to RM4.40 against the greenback is likely to remain relatively sustained for 2017,” it added.

Maybank IB is also positive on the ringgit outlook as the fundamentals remain intact. The first two months data of the second quarter on industrial production, retail trade and trade data remain positive.

“Besides, Bank Negara Malaysia’s initiatives to broaden and deepen the onshore financial markets remain intact and help to shore up confidence.

“We interpret these steps as positive and expect foreign investors’ confidence to gradually return,” the report said.

Export and import for July 2017 surged to +30.9% yearon-year (YoY) and +21.8% YoY respectively, from the +9.9% YoY and +3.7% YoY in June 2017.

“Our 2017 full-year export and import growth, as well as trade surplus forecasts remained at 15.3%, 16.8% and RM90.2 billion respectively.

“Next year, we are looking at 7% export growth, 7.8% import growth and RM90 billion trade surplus,” it noted.

Maybank IB believes October’s main lookout will be the national Budget 2018 that will be unveiled on Oct 27.

“Also, 2018 is an important year and the 14th general election must be held by August 2018. The year 2018 is also the midpoint of the 11th Malaysia Plan 2016-2020 (11MP) where the focus is on developing the people’s economy, in addition to the capital economy.

“Some of the 11MP’s targets are a balanced government budget and a lower government debt-to-gross domestic product ratio, both by 2020,” it added.

At this juncture, the research firm expects Budget 2018 to balance between addressing ongoing people’s issues like cost of living and affordable housing.

“And focus on mid-to-longterm growth agenda to realign 2018’s macro direction and targets much closer to the 11MP’s targets, including maintaining the fiscal consolidation.

“We expect infrastructure development to remain a key feature,” it said.