Business

Monday June 18, 2012

Analysts watching signs of stock selling pressure from foreign funds

By DANIEL KHOO
danielkhoo@thestar.com.my


KUALA LUMPUR: Malaysia which had last month bucked the regional trend and recorded net foreign fund inflows for the eighth consecutive month may see some stocks succumb to selling pressure by foreigners in the months ahead, analysts said.

Credit Suisse in a note issued recently highlighted ten stocks which have high foreign shareholdings that are susceptible to a selldown should these hot money decide to eventually leave Malaysia. “Hot money” as it is termed, is also known as foreign purchases into any type of local financial security including equities and the money market.

“If macro concerns continue to plague regional markets, we highlight Malaysian stocks which are widely held by foreigners which could be vulnerable in a selldown,” Credit Suisse said.

The report highlighted that stocks with high foreign shareholdings are AirAsia Bhd, Genting Bhd, IJM Corp Bhd, Genting Malaysia Bhd, CIMB Group Holdings Bhd, Gamuda Bhd, Alliance Financial Group Bhd, Public Bank Bhd, British American Tobacco (M) Bhd and Axiata Group Bhd.

It is also noteworthy that foreigners have continued to buy Malaysian stocks, bucking the regional trend for the month of May despite fears of eventual outflows and political risks.

“Net foreign buying of RM0.5bil in May bucked the regional trend. Year-to-date in 2012, foreign institutions have been net buyers of

Malaysian stocks totalling RM7.33bil (US$2.3bil), getting more than its fair share of the total net inflows for emerging Asian markets (excluding China) of RM65.63bil (US$20.6bil), despite the heightened political risk,” Credit Suisse said in the research note to its clients.

A Hong Kong based fund manager who invests into Malaysian stocks as well said election risks has already been priced into stocks on Bursa Malaysia while he personally expects the outcome of the pending general election to be “benign.”

The foreign fund manager said that Malaysia “still looked attractive” compared to its peers such as Singapore because there would be two high-profile initial public offerings (IPO) coming up in the months ahead IHH Healthcare Bhd, and the much-publicised Felda Global Ventures Holdings Bhd which is slated to be the second biggest IPO this year after Facebook.

Another pulling factor for foreign funds was the country's domestic demand and commodity-linked economy (palm oil and oil) which drives growth insulating it from the effects of the eurozone crisis and a potential economic slowdown in China, the fund manager said.

Meanwhile, Interpacific Research's head of research Pong Teng Siew told StarBiz that Malaysia had bucked the trend in May and recorded net foreign inflows for eight consecutive months and statistics showed that foreign funds were already selling in June.

“On the month to date in the first two weeks of June, Malaysia recorded net foreign outflows of RM1.45bil. And for the period from the second half of May until the first half of June, we have seen net cumulative outflows of RM2.63bil,” Pong said.

Asked if this was the beginning of a trend of larger selldown by foreigners, Pong said that “I am afraid of that happening and I am monitoring the situation very closely myself.”

He said records had shown that the cycles of foreign flows were usually tied very closely to significant movements of the stock markets. He said he was waiting to see if the selldown this time would turn out to be a more concerted selling by foreign funds.

On a related matter, RHB Research Institute in a recent report to its clients highlighted that there was “high foreign holdings” of Malaysian Government Securities (MGS) and money market funds in Malaysia presently.

“In the short term, we expect the ringgit to remain weak given the high foreign holding of MGS and money market funds in the country,” RHB said.

“Any sharp reversal of short-term capital could cause the ringgit to weaken further, although without the outflow of short-term capital, it is fundamentally supported at around RM3.00 per US dollar on account of sustained large current account surplus in the balance of payments,” RHB added.

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