KUALA LUMPUR: Overseas investors have been pulling out of Malaysian equities for 20 straight months. March could mark the turn of the tide.
Foreigners have poured a net US$97 million into local stocks this month through March 22, while withdrawing a combined US$1 billion from four other Southeast Asian markets tracked by Bloomberg.
The inflows come as valuation of Malaysia’s main equity gauge shows it is now the cheapest in the region while the dividend yield of 3% is the highest among major Asia Pacific indexes after Singapore.
Foreigners becoming net buyers would mark a rare event for a market that saw global funds pull a record US$5.7 billion last year. Political upheaval combined with the Covid-19 outbreak had soured sentiment even as local investors turned Malaysian glove makers into one of Asia’s hottest pandemic trades.
“There’s a thematic play for Malaysia in a sense that it has underperformed,” said Geoffrey Ng, director at Fortress Capital Asset Management Sdn. “Part of why there was so much foreign selling earlier was because of political uncertainty, which is fading now.”
Foreign shareholdings in Malaysian companies stood at 20.4% at the end of February, near the lowest in more than a decade, according to CGS CIMB Research. Ending March with a positive number would snap the longest run of foreign monthly withdrawals since at least 2009.
The Bursa Malaysia KLCI Index, down more than 5% from a December peak, is up 1.1% in March, poised for its best month this year. Beaten-down blue chips like casino operator Genting Bhd, banks and utilities have led the gains as new Covid-19 infections slow and vaccines are rolled out.
Even so, Credit Suisse Group AG cut Malaysia to underweight from market weight. The bank downgraded developing stocks due to a stronger US dollar, slow rollout of vaccines in the region and political risks in some commodity-exporting markets.
“It’s just one month of data, so we have to see if this trend continues,” said Ng.