Written by Max Koh
Wednesday, 07 September 2011 12:01

KUALA LUMPUR: Stocks with high foreign ownership are likely to experience a further selldown in the next few months as foreign funds reverse back to US Treasuries and fixed income, said analysts.

Kaladher Govindan, TA Research head of equities, said these stocks have seen some selling in the past two weeks and the cycle is expected to last until June next year.

'In the past two weeks, foreign funds have exited the local market and flowed back to US Treasuries and also fixed income. Based on historical trends, such outflow of funds usually lasts about 380 days,' he told The Edge Financial Daily.

Kaladher sees further downside on stocks that had been foreign fund favourites. Although these stocks could see a small rebound in October or November, he maintained that the overall foreign fund selling cycle is expected to last until June next year.

Counters such as CIMB Group Holdings Bhd and AirAsia Bhd had experienced some selldown in the past weeks, as foreign funds cashed out their profits. CIMB's share price in particular has fallen to a one-year low.

Maybank Investment Research said there could still be downside pressure in the near term following the sharp fall of 101.5 points on the FBM KLCI in August due to foreign net selling.

'Net selling in August only reversed out 58% of the total net foreign buying from April to July. We remain defensive at the core, expecting a rebound towards year-end to lift KLCI closer to our recently revised 1,520 points target,' it said.

FBM KLCI fell 6.4% or 100.48 points in the last four weeks to close at 1,454.37 points yesterday.

August saw RM3.8 billion worth of net foreign selling, compared with the total net foreign buying of RM6.6 billion in the preceding four months. The last significant net foreign selling was recorded in February at RM3.4 billion.

Genting is among equities with the highest foreign shareholdings on Bursa Malaysia.

According to Bursa Malaysia, foreign institutions constituted about 26% of total equities that were traded in August.

According to TA Research, equities with the highest foreign shareholdings on Bursa are AirAsia Bhd, Genting Bhd, IJM Corp Bhd, CIMB Group Holdings Bhd, AEON Co (M) Bhd, Uchi Technologies Bhd, United Malacca Bhd, Genting Malaysia Bhd, Gamuda Bhd and Maxis Bhd. These stocks have more than 29% foreign shareholdings.

TA Research said that while it has six 'buys' on these 10 stocks, it advises investors to do dollar cost averaging or wait for bargains at a deep discount.

CIMB was among the big caps with high foreign shareholdings that saw heavy selling in the last two weeks. It saw RM3.6 billion worth of market capitalisation wiped out with its share price falling 6.3% from RM7.79 to close at RM7.30 yesterday. It had fallen as low as RM7.04 within the period. About 37% of the banking group is held by foreign shareholders.

Analysts said the selldown can also be attributed to its 2QFY11 ended June 30 earnings that were below market expectation. The lower earnings were due to slower growth of non-interest income and loans.

AmResearch recently downgraded its earnings forecast for CIMB by 4.8% to RM4.2 billion for FY11. It has a fair value of RM9 for CIMB Group, while OSK Research maintains its 'neutral' call on CIMB Group with a fair value of RM8.20.

'As the stock's valuations are still relatively high at 2.1 times FY12 price-to-book (P/BV) versus its six-year historical P/BV of 1.85 times, any earnings disappointment could prompt a re-rating of valuations closer to its historical P/BV given its high foreign shareholding,' said OSK Research.

AirAsia, meanwhile, shed 28 sen or 7.7% in the past two weeks to close at RM3.4 yesterday with RM777.6 million in market capitalisation wiped out. About 52.3% of its stock is held by foreign shareholdings and it has 17 'buy' calls according to Bloomberg data.

OSK Research raised it earnings forecast for AirAsia by 15.6% for FY11 driven by higher passenger travel and lower jet fuel prices. It has a RM5.18 fair value for AirAsia.

IJM Corp dropped 2.7% to a low of RM5.66 in the last two weeks but has since risen to RM5.84 yesterday. Maxis also fell 1.8% to a low of RM5.31 but closed higher at RM5.40 yesterday. IJM and Maxis have 41% and 29.5% foreign ownership respectively.

Masterskill Education Group Bhd, which has 9.3% foreign ownership, saw its share price decline 29% in the last two weeks to finish at RM1.19 yesterday.

Last month, Masterskill announced its 2QFY11 results, which saw a 48% lower net profit of RM11.58 million compared with RM22.43 million a year earlier.

As a result, a number of research houses have downgraded their calls on Masterskill. Kenanga Research slashed its earning forecast for Masterskill by 22% for FY11 due to the poor 1HFY11 results.

Earlier this year, Masterskill's share price was depressed following a selldown by its foreign shareholders ' Smallcap World Fund Inc and Fidelity Management and Research LLC ' which ceased to be substantial shareholders in February.

Current notable foreign shareholders of Masterskill include Fidelity International and Asia Healthcare Holdings with 7.05% and 2.17% stakes respectively.

copied from TheEdge

TEH