Foreign funds likely to return in Q4, says Rakuten Trade
KUALA LUMPUR: Rakuten Trade, which expects volatility to reign in the local stock market for now, opines that foreign funds are likely to return in the fourth quarter against the backdrop of Malaysia’s position as a safe haven in the region and weakness in the US, said head of research Kenny Yee.
“The US has been the epicentre of volatility. Once volatility heightens, fund managers with cash will avoid the US and will look at Asia as Asia is a growth engine. Given time, money will come back to this region and Malaysia is a preferred destination because it is a safe haven,” he told a media briefing on the market outlook for the second half of 2018 here today, adding that the cheap ringgit will also spur a comeback.
Yee described the US as the biggest market concern over domestic issues, with more interest rate increases in 2018, uncertain trading patterns coupled with high valuations on Wall Street as well as President Donald Trump’s egotistical economic policies.
Bursa Malaysia is expected to be impacted by heightened global and regional volatility over the next few months, and to a less extent, domestic political landscape and impending overhaul of some government-linked companies.
Post the 14th general election, net foreign selling has hit almost RM7 billion year to date.
“Like it or not, the volatility of the local market will continue for now. For May and June, net foreign selling has been ongoing or every day, totalling RM10 billion and it’s continuing. Now we’ve seen the quantum of net selling diminishing in terms of value, but they’re still evaluating their buildings,” Yee said, adding that there is a positive correlation between net foreign selling and the FBM KLCI’s performance.
He considers the prevailing “kitchen-sinking” in the country a short-term pain, with the downtrend of major regional indices not exclusive to Malaysia.
Yee remains positive on Malaysia, given the ringgit performance, the country’s position as a safe haven, its domestic funds, and positive FBM KLCI estimates.
Against the US dollar, the ringgit is only down 0.28% year to date, Yee said.He expects the ringgit to strengthen to around the RM3.80 level.
Yee said Malaysia is blessed with the establishments of government-linked investment companies, namely Employees Provident Fund, Permodalan Nasional, The Retirement Fund Inc and Tabung Haji. These four manage a total fund size exceeding RM1.2 trillion. He said should there be any drastic fall, these will act as a cushion for any hard landing in the local market.
Rakuten Trade is the only equity broker which expects the FBM KLCI to touch 1,895 points by year-end, with corporate earnings growth of 6.8% estimated for FY18. The key index closed up 2.2 points at 1,690.65 points today.
It is also looking at FBM KLCI-linked counters as better bets at this juncture, with its top picks being Malayan Banking, Genting, Kuala Lumpur Kepong and Telekom Malaysia.
“At the moment, liquidity is scarce in the local market. Once the foreigners come in, these are the counters that they will go for first. Index-linked blue chips are ripe for pickings, many are now trading at attractive levels,” said Yee.