• Foreign investors sold RM2.12bn of local stocks since March

• Local funds bought a total of RM2.13bn for the same time.

• When will this reverse?

A few factors caused foreign funds to ditch our market since March though this is not surprising. To begin with, historically, fasting month has always been a challenging month for Bursa Malaysia amid history that was replete with a drop in volume and value on the back of lackluster sentiment and a less-than-desirable risk appetite. Therefore, foreign investors could sense the same though surprisingly it was not the case this year. In fact, FBMKLCI has been holding up well, ending the recent week at above 1,550 points, resilient despite the RM2.12bn sell down by foreign funds. In sum, it was the local funds that supported the market given a huge support totaling RM2.13bn for the same time (i.e., net buy). The big question is when will this reverse? The biggest overhang in the market is the US FOMC March policy statement which is highly anticipated by the global funds managers. This could shape their trading view in the next few months particularly when there is lack of visibility as to when the US central bank could normalize their policy rate. To recap, the FFR has been kept at above the neutral rate for an extended period of time though surprisingly this has no effect on the US economy. Unemployment in US has been quite resilient following February numbers that slipped only to 3.9% against 3.7% (January) though quite a distant compared to US FOMC comfortable level (4.5% unemployment rate). Unemployment in the US has been held back by a strong job opening which has maintained above 8mn for an extended period, which is more than 60% higher than pre COVID-19 average. This in fact could go higher which could dampen the effort to bring inflation down and therefore, the Phillip Curve theory. We think that it is granted that the policy rate will be maintained this March meeting. The biggest question is when will the FFR be cut if not in May? At this stage it could be in 3Q or at worst in 4Q though we need to forewarn that this is not cast in stone as the US central bank could take its time to evaluate each impact of rate cut particularly when the labour market is still hot. Too fast of a cut will risk inflation to rebound, rendering the central bank the tough act to meddle with the policy rate again and by extension, the global financial market. As there is much at stake – foreign investors prefer to lock in their profit before entering the high growth economy bourse again. We see no reason for foreign investors to ditch our market for an extended period amid Malaysia’s growth prospect that is among the highest in the region. Ringgit is also undervalued which underscores our alluring prospect. Political risk is almost low amid the current government that will remain in power until end of 2027 if not early 2028. Reforms efforts are also underway particularly the government’s efforts to boost revenue and keep expenditure manageable. Our enduring prospect (i.e., 2024 GDP – granular, CA balance) will be out in the open this Thursday amid BNM that will release its 2023 Annual Report.

Source: BIMB Securities Research - 18 Mar 2024