Foreign net sell continues in April

Foreign investors net sold MYR1.5b of Malaysian equities in Apr 2019, continuing on from the two preceding months. For Jan-Apr 2019, they have net sold MYR2.9b. Cumulative foreign net buy since early-2010, has more than zerorised, i.e. it has turned negative for the first time at - MYR0.1b. At e.USD0.71b for Jan-Apr 2019, foreign net sell on Malaysian equities is the largest in the region – this compares against their net sell in Thai equities of e.-USD0.3b, and net buy in Indonesia (e.+USD4.58b), Philippines (e.+USD0.82b) and Vietnam (e.+USD0.25b).

How much more to go?

On a rolling 12M basis, foreign net sell in Malaysian equities, as a ratio of total market capitalisation, has widened to -1.1% compared to -0.7% end- 2018, but nearing the -1.4% (lowest level) seen in 4Q 2015. Foreign shareholding in equities was 23.7% end-Mar 2019 (latest available) which translates into MYR410b worth of foreign holdings as at then.

Sell in May and go away?

This may not apply to Malaysian equities as we enter a busy month, with key domestic lookouts being: (i) BNM’s MPS, due on 7 May (our house view remains for a 25bps cut in the OPR to 3.0% in 2019, where the cut could come as early as 7 May); (ii) 1Q 2019 GDP release on 16 May (our house’s forecast is for +4.7% real GDP growth in 2019 [2018: +4.7%]); and (iii) 1Q 2019 results reporting by the PLCs. Another major lookout is regulators’ measures to address the “market accessibility” issue cited as a reason for FTSE Russell to place Malaysia bonds under its watch list [link] ahead of its World Government Bond Index review in Sep 2019.

Defensive core equity strategy

Relative to historical, KLCI’s valuations are now at their LT mean, i.e. 15.9x 12M fwd PER (vs. mean of 15.8x) and 1.7x trailing P/B (vs. mean of 1.8x). Against regional peers, the valuation gaps have narrowed (vs. JCI’s 15.1x, SET’s 14.9x, PSEi’s 16.2x) after KLCI’s underperformance (-2.9% YTD). That said, KLCI’s earnings growth proposition, at +3.8% for 2019, per our estimates, are less attractive than JCI’s +10.8% and PSEi’s +15.3%, based on Bloomberg consensus estimates. With headwinds persisting, we remain cautious and reiterate our defensive core equity strategy. Two key market re-rating catalysts are dissipating policy risks and stronger corporate earnings rebound.

Source: Maybank Research - 25 Apr 2020