'Bursa playing catch-up with regional markets'

KUALA LUMPUR/SINGAPORE: Overseas investors who sold the most Malaysian stocks in at least two years in August may sell more shares even as the government pledges reforms to attract foreign capital, CIMB Group Holdings Bhd said.

Worsening global economic turmoil may cause investors to keep unloading the nation's equities, according to Terence Wong, head of research at Kuala Lumpur-based CIMB, which was ranked third for Malaysian research in Institutional Investor's 2010

Promises by Prime Minister Datuk Seri Najib Razak to abolish laws allowing the government to detain citizens without trial as well as easing media rules will not be enough to boost confidence in the short term, Wong said.

"It's certainly positive news, but foreign investors' decision to invest in Malaysia or any country for that matter has now more to do with short-term developments in Europe and the US," Wong said.

"It's good news for the longer term, but unlikely to affect shorter-term investment decisions."

Overseas funds sold RM3.8 billion of Malaysian shares last month, the most since at least October 2009, after four consecutive months of inflows, according to data compiled by Bursa Malaysia.

The benchmark FTSE Bursa Malaysia KLCI Index, has slumped 10 per cent since June 30, headed for its biggest quarterly drop since the period ended December 2008, amid concerns Europe's debt crisis will spread and as the US economy showed signs of faltering. The MSCI Emerging Markets Index has lost 16 per cent this quarter.

The Malaysian stock gauge, down 11 per cent from a record on July 8, trades for 13.7 times estimated profit, the lowest level since April 2009. That's higher than the MSCI Emerging Markets Index's 10 times.

"If the bearish mood continues, there will be more selling," Wong said in an interview.

"We're playing catch-up with the other markets; we're among the most expensive in the region."

The analyst cut on September 5 his year-end forecast for Malaysia's stock index to 1,580 from 1,700.

The government will abolish the Internal Security Act and the Emergency Ordinance to ensure people can't be arrested for political affiliations, Najib said on September 15 in a speech broadcast on national television.

"This is a step in the right direction, moving more towards international standards that foreign investors are comfortable with," said Alan Richardson, who helps oversee about US$82 billion (RM255 billion) as a money manager at Samsung Asset Management in Singapore.

The net foreign outflow from Malaysia in August accounted for 31 per cent of the total from emerging markets in Asia, excluding China, suggesting that the Kuala Lumpur market "suffered the brunt of the selling," Tan Ting Min, an analyst at Credit Suisse Group AG, wrote in a report on September 12.

Before the sell-off, foreign funds piled into Malaysia's stock market, betting on Malaysia's efforts to bolster economic growth.

About RM6.7 billion of foreign funds flowed into Malaysian stocks from April to July, according to stock exchange data. - Bloomberg