Foreign stock inflows for 2018 wiped out in one week

Concern remains over how the new Pakatan Harapan government will continue economic growth.

SINGAPORE: While locals in Malaysia cheer the ouster of the Barisan Nasional coalition for the first time since independence, foreign stock investors are voting with their feet.

Foreign inflows into the local stock market of US$937.8 million were wiped out in little more than a week as concern remains on how the new coalition party under 92-year-old Dr Mahathir Mohamad will continue economic growth.

As of May 21, foreign outflows from stocks stood at US$21.2 million, after overseas investors sold a total of US$949 million worth of stocks in 11 straight days. The nation had recorded inflows of as much as US$2.4 billion in 2017.

While the market has maintained its calm by gaining 0.4% last week after the election outcome, foreign investors are less sanguine about the nation’s outlook.

“I’m not really surprised. The local market participants are far more excited than foreigners,” said Sat Duhra, a fund manager at Janus Henderson Investors in Singapore by email.

“I see little to get exuberant about the same old political characters with risk of fiscal indiscipline. It’s not a new dawn for Malaysia.”

Domestic support

Local funds and retail investors have been ploughing money into stocks by buying RM2.5 billion worth of equities as foreigners exit. The FTSE Bursa Malaysia KLCI Index is trading at 16.1 times its 12-month forward earnings, compared with a five-year average of 15.8 times.

For Asia Pacific investors like Duhra, he said elections in Indonesian and India were far more exciting with breakthrough events such as Jokowi becoming the first non-military Indonesian leader in years and Indian Prime Minister Narendra Modi the first real non-Nehru or Gandhi dynasty member for years.

Even so, Duhra is tactical overweight on Malaysian banks as the surging oil price has benefited the only net oil exporter in the region. A recovering ringgit has also boosted margins and the non-performing loans outlook of Malaysian banks.

Election pledges

In Mahathir’s first week in office, he has moved swiftly to fulfil campaign promises after last week’s election win, effectively scrapping a goods and services tax without announcing specific measures to recoup revenue losses.

This was greeted with caution by credit ratings companies, with Moody’s Investors Service labelling the move “credit negative”.

“Malaysia is not even close to being a transformational election,” Duhra said.

“If you strip out the noise about 1MDB, which rightly is getting people excited, there is not that much under the surface.”

Former prime minister Najib Razak is at the centre of investigations looking into the 1MDB sovereignty fund and whether it was used for embezzlement or money laundering. FMT