Foreign outflow from M'sian equity market highest in 17 months

PETALING JAYA: Malaysia saw the largest weekly outflow from its equity market last week since August 2013, as selling by foreign investors intensified amid uncertainties arising from the current weak oil prices and the prospects of higher US interest rates in the coming months.Foreign money outflow from the Malaysian equity market totalled RM1.42bil for the week ended Jan 16, which was more than double from the RM535.2mil registered in the preceding week, according to the latest fund flow report by MIDF Equity Research.

The brokerage noted that it was the second time in six weeks that foreign money outflow from the Malaysian equity market exceeded the RM1bil mark. The amount was also the biggest outflow for the country in almost two and a half years.“Foreign investors were net sellers every single day last week,” MIDF said.

“Selling peaked on Wednesday, when a net amount of RM413.1mil was offloaded,” it added, noting that it was the first time that foreign investors had sold more than RM400mil in a single day in the open market since Feb 4 last year. 

An analyst with MIDF told StarBiz that the trend of foreign money outflow from Malaysia, as well as other Asian equity markets, would likely continue in the weeks ahead until new impetus emerged for investors to put their money in the region.“On a positive note, the pace of outflow from the region has already slowed down,” he said. Year to date, the cumulative net foreign outflow from the Malaysian equity market stood at RM2bil, which was equivalent to about 30% of the total outflow recorded in 2014. “The foreign selldown on Bursa Malaysia is happening amid heightened level of participation,” MIDF pointed out. “Foreign participation rate (daily average gross purchase and sale) surged to RM1.14bil, the second week in a row that the amount exceeded RM1bil,” it added. The average daily foreign participation rate in 2014 was RM980mil.

According to MIDF, local institutions supported the equity market aggressively last week, mopping up RM1.34bil worth of shares. Their participation rate was also elevated at RM2.2bil while local retail investors remained largely on the sidelines, with a participation rate of only RM756mil and a net buying of RM75mil worth of shares. Rabobank said in its recent note to clients: “Without high oil prices, there appears far less foreign investor appetite for Malaysia’s idiosyncrasies.” The Dutch multinational financial institution pointed out that besides the equity market, the Malaysian bond market, which had high level of foreign ownership of more than 40%, was also showing some loss of foreign investor interest. 

Analysts said selling by foreign investors in the Malaysian bond market was expected to pick up pace in the current quarter. With continued foreign money outflow from Malaysia’s capital market, the ringgit would likely remain weak, with several research houses anticipating the country’s currency to weaken to 3.70 against the US dollar in the first quarter of this year before rebounding marginally in the subsequent quarters. Maybank Investment Bank Research, for one, said in its note to client: “Taken into consideration domestic development, heightened market volatility, potential US tightening tantrums, potential downward revision to oil prices for 2015 to US$50 per barrel (from US$70 per barrel), we have revised our US dollar-to-ringgit forecast higher to 3.70 for the first quarter.”

The domestic brokerage said it expected the ringgit to remain volatile in the subsequent quarters, rebounding to 3.58 against the US dollar in the second quarter, but weaken again to 3.65 in the third quarter before regaining strength to 3.50 in the final quarter of the year. At 5pm yesterday, the ringgit was traded at around 3.57 against the greenback. Crude oil prices weakened yesterday, with the international benchmark Brent falling back to the US$49.50 per barrel level after a weak rebound last Friday to US$50.17 per barrel.