Analysts watching signs of stock selling pressure from foreign funds

KUALA LUMPUR: Malaysia which had last month bucked the regional
trend and recorded net foreign fund inflows for the eighth consecutive
month may see some stocks succumb to selling pressure by foreigners in
the months ahead, analysts said.
Credit Suisse in a note issued
recently highlighted ten stocks which have high foreign shareholdings
that are susceptible to a selldown should these hot money decide to
eventually leave Malaysia. “Hot money” as it is termed, is also known
as foreign purchases into any type of local financial security
including equities and the money market.
“If macro concerns
continue to plague regional markets, we highlight Malaysian stocks
which are widely held by foreigners which could be vulnerable in a
selldown,” Credit Suisse said.
The report highlighted that stocks with high foreign shareholdings are AirAsia Bhd, Genting Bhd, IJM Corp Bhd, Genting Malaysia Bhd, CIMB Group Holdings Bhd, Gamuda Bhd, Alliance Financial Group Bhd, Public Bank Bhd, British American Tobacco (M) Bhd and Axiata Group Bhd.
It
is also noteworthy that foreigners have continued to buy Malaysian
stocks, bucking the regional trend for the month of May despite fears
of eventual outflows and political risks.
“Net foreign buying of
RM0.5bil in May bucked the regional trend. Year-to-date in 2012,
foreign institutions have been net buyers of
Malaysian stocks
totalling RM7.33bil (US$2.3bil), getting more than its fair share of
the total net inflows for emerging Asian markets (excluding China) of
RM65.63bil (US$20.6bil), despite the heightened political risk,” Credit
Suisse said in the research note to its clients.
A Hong Kong
based fund manager who invests into Malaysian stocks as well said
election risks has already been priced into stocks on Bursa Malaysia while he personally expects the outcome of the pending general election to be “benign.”
The
foreign fund manager said that Malaysia “still looked attractive”
compared to its peers such as Singapore because there would be two
high-profile initial public offerings (IPO) coming up in the months
ahead IHH Healthcare Bhd, and the much-publicised Felda Global Ventures Holdings Bhd which is slated to be the second biggest IPO this year after Facebook.
Another
pulling factor for foreign funds was the country's domestic demand and
commodity-linked economy (palm oil and oil) which drives growth
insulating it from the effects of the eurozone crisis and a potential
economic slowdown in China, the fund manager said.
Meanwhile, Interpacific Research's head of research Pong Teng Siew told StarBiz
that Malaysia had bucked the trend in May and recorded net foreign
inflows for eight consecutive months and statistics showed that foreign
funds were already selling in June.
“On the month to date in the
first two weeks of June, Malaysia recorded net foreign outflows of
RM1.45bil. And for the period from the second half of May until the
first half of June, we have seen net cumulative outflows of RM2.63bil,”
Pong said.
Asked if this was the beginning of a trend of larger
selldown by foreigners, Pong said that “I am afraid of that happening
and I am monitoring the situation very closely myself.”
He said
records had shown that the cycles of foreign flows were usually tied
very closely to significant movements of the stock markets. He said he
was waiting to see if the selldown this time would turn out to be a
more concerted selling by foreign funds.
On a related matter,
RHB Research Institute in a recent report to its clients highlighted
that there was “high foreign holdings” of Malaysian Government
Securities (MGS) and money market funds in Malaysia presently.
“In
the short term, we expect the ringgit to remain weak given the high
foreign holding of MGS and money market funds in the country,” RHB said.
“Any
sharp reversal of short-term capital could cause the ringgit to weaken
further, although without the outflow of short-term capital, it is
fundamentally supported at around RM3.00 per US dollar on account of
sustained large current account surplus in the balance of payments,”
RHB added.