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.

• 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

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.
• 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