IT may be too premature to tell if the recent foreign inflows can be sustained through the coming months.
However, having net sold Malaysia over the past seven of the eight years totalling -RM67.3 bil (including RM2 bil year-to-date), the current foreign shareholding levels could have probably scrapped the bottom of the barrel, according to Hong Leong Investment Bank (HLIB) Research.
“Judging from our monthly post-Global Financial Crisis (GFC) analysis between the FBM KLCI and foreign shareholding – computing a pretty decent 69.3% correlation between the two variables – a recovery in the latter could help uplift the market,” opined head of research Jeremy Goh in a market outlook note.
“We keep our end-2021 FBM KLCI target unchanged at 1,640 or 16.7 times price-to-earnings ratio (PE) on mid-2022 earnings per share (EPS).”
After net selling Malaysian equities for 25 consecutive months (since July 2019), the tide finally turned as foreigners became net buyers from August-September to the tune of +RM1.92 bil.
Their net buying momentum continues to hold up this month with consecutive inflows for the past 12 trading days (Oct 6-22), bringing the month-to-date (MTD) sum to +RM1.57 bil (August to MTD-October: +RM3.49 bil).
On the other side of the coin, domestic institutional investors were net sellers between August to MTD-October at -RM4.67 bil while retailers tapered their net buys during that period to +RM1.18 bil.
In July and August this year, foreign shareholding on Malaysian equities hit 20.2% – a record low even below the GFC’s bottom of 20.7%.
“With the recent return of foreign inflows, foreign shareholding managed to inch up slightly in September to 20.4% (+0.2 percentage point month-on-month [mom]),” observed HLIB Research.
“Judging from trade flow trends thus far this month, our guesstimate is that foreign shareholding could further increase to 20.6% by end-October (+0.2 percentage point mom).”
Within the research house coverage, stocks that have low foreign shareholding relative to their historical levels with “buy” ratings are Malayan Banking Bhd (target price: RM9.40); Tenaga Nasional Bhd (target price: RM12.50); Sime Darby Plantation Bhd (target price: RM4.99); Kuala Lumpur Kepong Bhd (target price: RM25.33); IJM Corp Bhd (target price: RM1.96); and V.S. Industry Bhd (target price: RM1.88). – Oct 26, 2021
