Foreign selling may not weigh on market

Foreign selling may not weigh on market
Business & Markets 2013
Written by Fatin Rasyiqah Mustaza of theedgemalaysia.com
Wednesday, 05 June 2013 09:41


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KUALA LUMPUR: Foreign selling may not weigh on the local market amid the growing retail interest and support from local institutional funds, said analysts.

Affin Investment Bank head of retail research Dr Nazri Khan said the current foreign sell-off is a reaction to US Federal Reserve chairman Ben Bernanke's statement on the possibilities of a slowdown in bond buying and is not only affecting Malaysia but also the region.

Nazri said foreign selling is normal each year as these foreign investors are known to cut back on investments due to the mid-year portfolio rebalancing ahead of the summer holidays.

Areca Capital Sdn Bhd CEO Danny Wong said the sell-off would not have much effect on Bursa Malaysia.

"This is because local investors are still buying in our equity market and therefore the effect on the market would not be severe," he said.

Wong said second liner stocks are gaining momentum. "This would sustain the equity market," he said.

According to Wong, the situation is normal pending data from the US as there are possibilities the US Federal Reserve may cut bond buying programmes. The Fed foresees the US economic recovery as intact.

"The foreign buyers will come back because there is still potential in Asia's growth," he said.

Foreign funds were reported to be selling equities in Malaysia and in the region recently. Last week, data showed net selling of RM629 million, the first after a record 24 weeks of non-stop buying.[You must be registered and logged in to see this image.]

MIDF Research said in a report foreign investors were selling every day last week. The volume of the selldown yesterday hit a peak of RM232 million, the highest one-day selldown since June 28, 2012.

The research house added that despite the selling last week, the overhang in foreign liquidity remains comfortable. This year, foreign investors bought US$5.9 billion (RM18.2 billion) net of Malaysian equities on the open market compared with US$4.5 billion last year.

"Foreign participation rate (average daily gross purchase and sale), which was already elevated, surged further to RM1.5 billion per day last week, compared with RM1.2 billion in the previous week," said MIDF in the report.

"We believe the retail interest will sustain if the market correction expected this week is not severe as local retailers are sitting on sizeable cash, having sold RM6 billion this year, exceeding the RM4.2 billion offloaded in 2012," it said.

According to the research house, Bursa Malaysia is currently dominated by local funds that supported the market heavily last week.

Similar trends are also seen in South Korea, Taiwan, Thailand, Indonesia, the Philippines and India.

Late last month, Bernanke said the central bank could trim its US$85 billion monthly bond buying programme.

However, the chairman's statement suggested Fed officials have not yet come to a consensus on winding down the bond buying but a decision appears to be approaching in the months ahead.


This article first appeared in The Edge Financial Daily, on June 5, 2013.