Can M'sian equity market sustain interest of foreign investors?

Wednesday September 15, 2010
Can M'sian equity market sustain interest of foreign investors?
By FINTAN NG
fintan@thestar.com.my

US$307.7mil flowed into the local equity market in July alone

PETALING JAYA: There is a big question over how the local equity market can sustain the interest of foreign fund managers as the benchmark FBM KLCI has risen 18.06% since the May 26 low.

“That’s the million-dollar question,” CIMB Investment Bank Bhd research head Terence Wong told StarBiz over the phone yesterday.

Wong, citing Emerging Portfolio Fund Research data, said in a report dated Aug 26 that some US$307.7mil of foreign funds flowed into the local equity market in July alone, which helped to push year-to-date net flows into positive territory.
Terence Wong says US$307.7mil flowed into the local equity market in July alone

He said since these fund flows were erratic to begin with, “it is very hard to answer whether it will be sustainable since we don’t know what the fund managers are thinking as they won’t reveal their strategy.”

For the first five months of the year, the local equity market saw net outflows, which then turned positive in June when US$168.8mil flowed into the market.

Wong said foreign interest in Malaysian stocks was part of the “emerging-markets theme” which had been playing out over recent weeks.

“The region’s resilient economies are also seeing domestic demand growth as well as stronger currencies versus the US dollar,” he said, adding that economies in the region buttressed by strong growth in China and India were “better places for fund managers to place their money.”

Morgan Stanley Research analyst Jonathan Garner said in a Sept 2 report that focus in the MSCI Asia-Pacific ex-Japan regional benchmark was now shifting towards the lower-income/faster-growing countries in the region and away from the more advanced countries.

He said this was due to, among others, new and secondary listings, stock buybacks as well as mergers and acquisitions.

Garner said between the current situation and October 2007, the weightage (on the MSCI) of China, Malaysia, Indonesia and India had gained the most while Australia, South Korea and Hong Kong had fallen the most.

He added that the only exception to the trend was Singapore, which gained.

However, Fortress Capital Asset Management Sdn Bhd chief executive officer Thomas Yong was less sanguine, opting for fixed-income securities over equities.

He said the uncertain economic outlook could prompt investors into dumping stocks for safer bonds.

“In my opinion, growth will be fairly moderate for the rest of the year and next year, so investors may want to manage their risks,” Yong said, adding that yields in Malaysian fixed-income securities were higher than in the region and against US dollar instruments, making it a more attractive investment.