PETALING JAYA: Two factors appear to be on the top of most investors’ minds pertaining to the local market at the moment.
These are whether the key 1,600-point support level on the benchmark FBM KLCI would be able to hold, and if net buying by foreign investors would soon return to the local bourse.
It is notable that after a period of strong sustained buying by foreign investors for most of the year up till the third quarter or so, this group of investors have just turned into net sellers in the year-to-date (y-t-d) period as of the end of last week.
The strong net buying by foreign investors that was seen earlier in the year was unable to sustain following the recent re-election of Donald Trump as the incoming US president, who will be installed on Jan 20.
“The trend of foreign net selling started following Trump’s re-election and this continues until today.
“From an earlier figure of net foreign inflows of RM1.5bil at its y-t-d peak, we are now recording about RM1.6bil of net foreign outflows in the y-t-d period,” chief executive officer and founder of Tradeview Capital Ng Zhu Hann told StarBiz.
“Trump’s recent rhetoric, which points to a stronger US dollar, has seen funds leaving emerging markets and this includes Malaysia back to the United States,” Ng added.
The FBM KLCI climbed higher at its close yesterday by 11.48 points or 0.72% to 1,606.96.
Gainers outnumbered losers 683 to 432 while 483 counters remained unchanged.
Some 3.32 billion shares worth RM3.31bil changed hands.
Fund outflows were also apparent in China, for example, as Bloomberg reported yesterday that exchange-traded funds (ETFs) that track Chinese stocks had seen record outflows last month.
The US$7.2bil iShares China Large-Cap ETF saw about US$2.3bil in outflows last month, while investors pulled more than US$1bil from the KraneShares CSI China Internet Fund – the largest monthly redemption for both funds on record.
Back home, Ng said the market would require broad-based buying support from all parties including foreign investors and retailers if the FBM KLCI is to be supported above 1,600 points in the longer term.
“As of now, we are seeing net outflows by retailers and the only one supporting are the local institutions that have recorded some RM6bil of net buying this year.
“Local funds are supporting the market,” Ng said.
Tradeview Capital’s year-end target for the FBM KLCI is 1,650.
“We have not revised this target. We think the market will be able to hold above this level until the end of this year from ample support by local institutions and some return in foreign investors.
“Coupled with this is that our market valuations here are still reasonable,” Ng noted.
He said key factors to look out for in the near term that would potentially affect market movements include any further interest rate cuts before Christmas and any major actions by other key central banks.
“For the Bank of Japan – there is a likelihood it will raise its interest rates to 0.5% from 0.25%, which would be the biggest hike since 2008 for Japan.
“This could mean big outflows of funds if it happens.
“But if the United States continues its cut and Japan maintains there could be some inflows into emerging markets,” he said.
Meanwhile, Fortress Capital Asset Management’s founder and chief executive officer Datuk Thomas Yong said some foreign investments would usually have a short-term investment horizon.
“However, foreign participation remains small compared to local institutional funds. Foreign shareholding is currently below 20% and a large part of these remaining holdings are strategic investments with a longer-term investment horizon,” Yong said.
“Hence, if further values emerge from any foreign selldown, local participation will absorb some of this selling.
“As we move towards the year-end festive season, institutional market activities will likely slow down,” Yong noted.
Moving forward, he expects investors will closely monitor political developments in the United States and headline announcements apart from business fundamentals.
“Historically, the FBM KLCI usually sees positive performance in the final month of the year,” Yong added.
Meanwhile, CIMB Research noted in its report that even as they net sold the broader market, foreign investors were the top net buyers in property sector stocks last week with Sime Darby Property Bhd
, Tanco Holdings Bhd and YNH Property Bhd as their top net buy stocks.
“Foreign investors continued as net buyers in the sector for the 12th straight week, but reduced their net buy value by 58% from the previous week to RM18.5mil,” it said.
It also pointed out that real estate investment trusts (REITs) were foreign investors’ second-largest net buy sector last week, with IGB-REIT, Pavilion-REIT and Sunway-REIT as their top net buy stocks in this segment.
“Foreign investors remained net buyers for the fifth week, but their net buy value fell slightly to RM4.7mil,” it added.
