3 June 2013 | Strategy - Weekly Fund Flow
• In this report last week, we warned that foreign investors were getting edgy as the amount of net buy was shrinking. True enough, foreign funds sold Malaysian equity in the open market (i.e excluding off-market deals) last week amounted to -RM629.5m. That was the first sell down after a record 24 weeks of non-stop buying.
• Foreign investors sold every single day last week. The volume of the sell down hit a peak on Thursday, hitting -RM232m. That was the highest 1-day sell down since 28 June 2012.
• Despite the selling last week, the overhang of foreign liquidity remained uncomfortably. So far this year, foreign investors have bought +RM18.1b or +USD5.9b net of Malaysian equity in the open market compared with +RM13.7b (+USD4.5b) in 2012.
• Foreign participation rate (average daily gross purchase and sale), which was already elevated, surged further to RM1.5b per day last week, compared with RM1.2b in the previous week.
• The local retail market quickly turned cautious last week and there was moderate withdrawal from active participation. However, risk aversion was much higher in the week prior to the General Election. Last week, retailers offloaded only -RM3.7m. Participation rate fell to RM1.4b from RM1.8b, which was still considered elevated. We believe the retail interests will sustain if the market’s correction expected this week is not severe. As we had written last week, local retailers are sitting on sizeable cash, having sold -RM6.0b this year, already exceeding the -RM4.2b offloaded in the entire 2012.
• Activity on Bursa is currently dominated by local funds which supported the market heavily last week. Local institutional funds bought +RM633.2m, the first buying in 14 weeks. The participation rate was RM2.4b, and the figure had exceeded RM2b in the last 5 weeks. Local funds remained flushed with liquidity, having sold their equity holdings by a massive -RM12.1b net in the open market this year, compared with -RM9.5b sold down in 2012.
THE WEEK AHEAD
• The final score in the month when the general election was held is a revelation indeed. After exploding promisingly the day after the election, the KLCI fizzled out to record a gain of only 3.0% in May, the second best May in 5 years. The real winner was the FBM70 index, which shot up 12.7% during the month, the best performance in May since 2000
• It is clear that the wider market has “awakened”. The retail market is active with plenty of actions among the small and mid cap stocks. Volume in May hit a whopping 47.8b units, 101%yoy higher. This is a healthy development for the market as wider participation adds depth and will help sustain trading interests.
FOCUS ON GLOBAL MACROS
• Trading crosses over to the month of June this week. We note that June had historically been a positive month for the equity market with prices gaining steadily during the month.
• However, Asian equity markets are now at a crossroad with focus gravitating back to macro concerns.
• Last week, the IMF cut its forecast of China’s economic growth in 2013 to 7.75% from 8%. The downgrade in the forecast is inevitable in our opinion, as the world’s economy has continued to struggle. Meanwhile, the OECD also slashed its GDP growth forecast for China to 7.8% from 8.5%. While the IMF sees external weakness as the cause of the downgrade, the OECD blames the domestic demand for the drag. Either way, it is safe to assume that China’s economy is heading south this year.
• Over the weekend, China released its official PMI which shows a reading of 50.8 (Reuters poll is 50.1 while the flash PMI by HSBC shows a decline, the first in 7months). That should be a huge relief for the market, as anything less than 50 could have been catastrophic.
• The U.S will release its PMI for May on Monday. The index dropped sharply to 50.7 in April, the lowest in four months. A dip below 50, which signifies a contraction in the manufacturing sector may spell disaster for sentiment.• All considered, we would advise investors to tread cautiously this week.