RM1.3b fund outflows reported in June, after 5 months of inflows

by TMR / TMRgraphic

FOREIGN investors have switched to net selling with a cumulative RM1.3 billion in June, after five consecutive months of equity inflows.

According to AmBank Research, this has depressed the FTSE Bursa Malaysia KLCI (FBM KLCI) below the 1,500 thresholds to 1,444 currently versus the last year’s low of 1,475 during Omicron-dampened December last year.

“The weakness stemmed from net equity purchases by local institutions in June reaching only RM659 million, half of the foreign investors’ net sales and partly cushioning the FBM KLCI decline,” it said in a note today.

However, the research firm expects a return of foreign equity buyers in the second half of 2022 (2H22), notwithstanding the June foreign equity outflows, amid emerging bargain valuations and prospects of a stronger 2022 GDP growth of 5.6% versus the global rate of 3.6%, further underpinned by expectations of a stronger 2H22 ringgit.

Within the region, Indonesia’s stock market bucked the trend with the Jakarta Composite Index rising 5% year to date versus regional declines as Taiwan slid 19%, the Philippines 14%, India 9%, Malaysia/Japan 8%, China/Hong Kong 7% and Thailand 5%.

Hence, the FBM KLCI currently trades at a bargain 1.4 standard deviation (SD) below or a 14% discount to its five-year median of 16.4 times.

In comparison, Thailand is currently at 0.2 SD below its five-year median, Hong Kong at 0.3, China (0.4), Indonesia (0.6), India (0.8), Japan (0.9) and the Philippines (one). Only Taiwan currently trades at a higher discount of 31% or 2.1 SD.

“Near term, the fund flow volatility could continue to drive the index within a range-band of 1,400 to 1,600 as the recent reopening of international borders and stronger economy may be curtailed by higher than expected US rate hikes, stagflationary worries, earnings volatility amid commodity price swings, further supply chain shocks from Russia being shunned by the global economy, GST reintroduction and political noises running up to the 15th General Election,” AmBank Research added.

It reiterates ‘Overweight’ on the automobile, banking, media, oil and gas, ports, power and technology sectors with the top ‘Buys’ being Malayan Banking Bhd, Tenaga Nasional Bhd, CIMB Group Holdings Bhd, RHB Bank Bhd, Berjaya Food Bhd, Telekom Malaysia Bhd, Inari Amertron Bhd, Malaysian Pacific Industries Bhd, Bermaz Auto Bhd and Dialog Group Bhd.