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Wednesday, 21 June 2017

(The Star) Foreign fund flows into M'sia abate, ringgit seen at 4.2 against US$

PETALING JAYA: The inflow of fresh money from abroad is seeing signs of a softening momentum after weeks of being net buyers of Malaysian equities.

Foreign fund flows into Bursa Malaysia turned negative last week after 18 weeks of relentless buying, with a net outflow of RM99.6mil from a net inflow of RM249.8mil the prior week. Still, foreign funds remained net buyers on Bursa Malaysia with over RM10bil net.

Fund managers said the net inflow of funds from abroad spiked about two months ago, and ever since then, there has been gradual reduction in fresh funds coming into the market.

“The ‘trend’ is not happening only to us. Across Asia, it has been the same with net inflows slowing down,” a fund manager said.

For the week ended June 16, South Korea saw foreign investors pulling out US$279.2mil, Thailand experienced a net outflow of US$67.5mil while Taiwan registered an outflow of US$680.9mil, its highest outflow in a week this year.

MIDF Research said in Asia, global investors moved into a period of relative lull. Investors classified as “foreign” moved to the sidelines, disposing a marginal US$92.4mil net last week in the aggregate seven countries that it tracked.

Additionally, analysts said the latest United States Federal Reserve (Fed) rate hike by 25 basis points to 1%-1.25% last week has partly driven the volatility in emerging-market fund flows.

“Any hawkish move from the Fed would likely drive short-term volatility in emerging-market fund flows, which could impact asset prices as well as currencies,” a fund manager with a local bank said, adding that it was unlikely there would be a mass exodus from emerging-market stocks in the short term.

He noted that Malaysian equities were still experiencing an inflow rather than an outflow of funds, and the trend is expected to continue this month.

According to stock market data, foreign funds were net sellers on Bursa Malaysia on Monday at RM42.45mil, while local institutions were net buyers at RM25.90mil and local retailers also net buyers at RM16.55mil.

MIDF Research said there was relatively heavy foreign selling last Friday of RM189.3mil, the highest in a day this year, after the US rate hikes on Thursday and gains in US treasury yields which boosted the US dollar.

“Despite the deficit last week, cumulative year-to-date purchases by foreign investors still amounted to RM10.3bil. In fact, foreigners have been net sellers in only three out of 24 weeks in 2017,” MIDF Research said. On a positive note, the research house said foreigners were actively trading Malaysian equity last week.

Foreign participation was vibrant, as the foreign average daily trade value rose above the RM1bil mark, increasing by 40% for the week to RM1.4bil from RM999mil. Indeed, foreign participation exceeded RM1bil in three out of four trading days last week.

Meanwhile, Malaysian Government Securities (MGS) yields generally rose across the board except for the front end. The yield of the benchmark three-year MGS slipped 2.2 basis points, while that of the 10-year gained 1.4 basis points for the week ended June 19.

Based on Bloomberg data, total trading value for government bonds (MGS/GII) declined to RM16.2bil last week from RM21.4bil the week before.

As at end-May 2017, total foreign holdings of government bonds stood at RM170.7bil.

Likewise, total foreign holdings of corporate bonds increased by RM147mil in May 2017 to RM16.6bil.

MIDF Research foresees the ringgit touching 4.20 by year-end due to an improvement in market confidence, as well as steady economic growth in Malaysia’s domestic and external market activities.

FXTM vice-president for corporate development and market research Jameel Ahmad said the performance of the ringgit throughout the week would be largely dependent on the US dollar, but there were a number of scheduled speeches from the Fed members that might provide some further clues on the timing of the next US interest rate rise after the central bank appeared to be highly optimistic over the possibility of further interest rate increases before the end of 2017.

“It can be said that US dollar traders aren’t really buying into the idea that the Fed would be raising interest rates as many times as the latest policy meeting indicated, but repeated signals from Fed members might provide some risks to the emerging markets.

“The economic data front from Malaysia is also relatively light, although the latest inflation data is scheduled to be released today, with the gradual recovery in the ringgit over the past few months likely to have eased price pressures,” he said.

Year-to-date, the ringgit has appreciated 4.7% against the US dollar.