Sep 10, 2013

Malaysia Weekly Fund Flow

FUNDS FAVOURING NORTH ASIA, MALAYSIA STAYS VULNERABLE
•  Foreign funds exited Malaysian equity for the sixth consecutive weeks. Foreigners sold Malaysianlisted shares amounted to -RM901.8m net in the open market (i.e excluding off-market deals) last week.
•  In the last six weeks, a total amount of -RM8.0b or -USD2.43b of foreign money had exited Malaysian equity.  Still,  there  remained  an  overhang  of  +RM7.0b  or  +USD2.5b  of  foreign  portfolio  capital  in Malaysian equity market as of Friday. This is only the money that entered in 2013. Since Jan 2011, the cumulative overhang (based on net purchases in the open market) amounted to +RM22.6b or +USD7.6b. Therefore, Malaysia remained vulnerable to foreign selldown in its equity market.

malaysia weekly fund flow chart
•  Foreign funds were net sellers every single day last week. The selling in the open market had now stretched for 29 out of the last 30 trading days. However, we note that the quantum of the selldown tapered signifi cantly, to an average of only -RM180m per day last week, compared with an average of -RM425m and -RM580m per day in the preceding two weeks.
•  Foreign  participation  plunged,  another  sign  that  selling  may  be  tapering  off.  Participation  rate (average daily gross purchase and sale) was only RM779m, compared with >RM1.3b in the preceding two weeks.
•  Local  institutions  supported  the  market,  albeit  passively last  week.  Local  institutions  mopped  up +RM992.6m  last  week,  and  had  mopped  up  +RM8.0b  in  the  last  six  weeks.  Participation  rate  also
dropped signifi cantly to RM1.5b.
•  Retailers remained bearish, exiting the market for the second consecutive week. Retailers offl loaded -RM91m,  compare  with  -RM273m  the  week  before.   We  reiterate  that  the  fear  factor  has  set  in, with most retailers on the sideline. Participation rate was at only RM767m, the lowest in 18 weeks

fund flow table

THE WEEK AHEAD
THE RINGGIT FACTOR
•  The relatively weak employment numbers in the U.S may provide a temporary respite to the market on Monday, on  the  premise  that  the  Fed’s  “tapering”  action  may  not  be  as  aggressive  as  earlier  indicated.  However,  the bottomline is that the economy is still generating jobs and it is recovering, albeit slowly. •  However,  strategy  this  week  has  to  centre around the current pressure on the ringgit.
rinngit effective rate•  The ringgit hit 1USD/RM3.329 on Friday. It was the  second  worst   performing  currency  last week,  after  the  Japanese  yen,  depreciating -1.3%  against  the  greenback,  the  most  in  five weeks.  Year-to-date,  it  has  lost  -8.1%  against the  dollar.  On  trade-weighted  basis,  the  real effective  exchange  rate  of  the  ringgit  had declined  -8.13%  since  the  year’s  high  in April (see chart).
•  Bank  Negara’s  statistics  for  July  released last  week  show  that  the  foreign  selldown  in the  bond  market  had  been  more  substantial
in  ringgit  term  (which  is  unsurprising  as  the overhang  of  foreign  portfolio  liquidity  in  the bond  market  is  about  three  times  more  than
that  in  the  equity  market).   The  cumulative fl ow  of  foreign  liquidity  to  the  bond  market for the period Jan-Jul 2013 was already in the negative  territory,  at  -RM4.16b  (see  chart). In  contrast,  the  corresponding  figure  for  the equity  market,  but  for  the  period  Jan-Aug 2013, was still in the greenzone at +RM7.92b.
•  Foreigners  sold  a  whopping  -RM12.3b  in  the bond  market  in  July.  During  the  same  month, the amount sold in equity was only -RM213m.
•  The  selldown  in  the  bond  market  started earlier, in May, which was after the ringgit hit post-Crisis high in April. The selldown in equity only started in June.
•  The  risk  of  continued  outfl ow  of  foreign liquidity,  especially  from  the  bond  market remain high as the infl ow had been strong since mid-2010 (see chart). The continued threat of this outfl ow is expected to keep the ringgit under pressure for quite some time. Malaysia has to make a strong case to convince the funds to remain in the country

by MIDF Research