Will Foreign Selling Continue?

by phillips capital

Foreign institutional selling in Malaysia since June has slowed down. This is obvious in our analysis in 
i) The USD  MYR exchange rate versus the cumulative foreign net  purchases for 2013 
ii) Foreign holdings of Malaysian Government Bonds versus Rate of decline for our local 
currency and 
iii) Futures index (FKLI) premium/ discount against the cash market of FBM KLCI. 

Foreign funds returned since early this week. We note that foreign institutions have become net buyers of the Malaysia Stocks index in recent days after nearly 30 consecutive days of net selling, foreign cumulative holdings since beginning of the year was at its peak in late April, at RM18.8bln worth of equities bought while currently cumulative net purchases are at RM7.7bln or circa 40% of peak holdings. The selling may have priced in for possible tapering of bond purchases in the United States and also the weak fiscal balance sheet issue in Malaysia. After hitting a low of RM3.33 per USD in late August, the local currency has since strengthened to RM3.26 per USD (see chart) which may indicate foreign outflow has tapered off.

Based on our analysis, initial data indicate foreign institutional selling momentum may have slowed down. Bulk of foreign fund flows which have left the country may have already priced in the Fed’s tapering in September. The outflow from emerging markets had also coincided with regional equity weakness thus going forward we will still need to monitor the US market which is near their all-time high. This may be an opportune time for investors to accumulate positions in the equity market in view of foreign net purchases of late.

source: https://www.eunittrust.com.my/pdf/research/Foreign12092013.pdf