19 Aug - 3 min read
The head of research for Rakuten Trade, Kenny Yee has cautioned that Bursa Malaysia is in urgent need of liquidity. This is due to the massive foreign outflow that took place within the Malaysian and other regional markets.
According to Yee, Malaysia saw a record high foreign outflow that amounted to RM24 billion back in 2020. This is further worsened by a year-to-date foreign outflow that currently stands at RM5.9 billion. Only retail trading showed positive inflows, amounting to RM9.3 billion.
“Retail participation remains the hero for the local bourse as depicted from the persistent positive monthly inflows since January 2020. The total inflow for 2020 was RM14.2 billion, pushing the 2020 and 2021 total to RM23.5 billion,” said Yee.
Yee also highlighted that almost all of the Top 10 FTSE Bursa Malaysia KLCI constituents are trading well below their historical price-to-earnings ratio (PE ratio) because of the continuous selling by foreign funds. “Apart from Bursa Malaysia Technology Index and Bursa Malaysia Transportation and Logistics Index, the others are all trading below their historical PE ratio. It is obvious that the local bourse is in dire need of liquidity. While the retail portion is already in place, inflows from foreign funds would be of utmost importance,” he further clarified, adding that it is difficult to time the potential inflow of foreign funds.
That said, Yee believes that it is only a matter of time before foreign funds begin to make its way back – not just to Malaysia, but to the Asian region in general. In fact, he speculates that the comeback may happen at least by the end of the year.
“The catalyst for foreign inflows could be, as we go to the end of 2021, there will be repositioning of funds. Maybe some of these foreign funds will be looking for other avenues, that is why we are expecting some inflows of funds to the ASEAN region,” said Yee, who also commented that easy money is no longer available on Wall Street, which will then drive many investors to seek new avenues.
“Valuation-wise, US equities are currently trading at around 50% above its historical average. Though corporate earnings remain robust, growth should retrace back to normalcy. If I am a foreign fund manager, I will certainly look elsewhere (outside of the US) to put my funds. Although Malaysia may not be at the top of the investment list, it can enjoy some spillover effect if the foreign monies make a U-turn into the Asian region,” Yee explained.
Yee also noted that Malaysia is not the only country in Southeast Asia to suffer from foreign fund outflows. According to him, Vietnam, the Philippines, and Thailand were all also affected by substantial foreign outflows – with the latter two countries having a worse experience than Malaysia.
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