This article first appeared in The Edge Financial Daily, on October 6, 2015.

KUALA LUMPUR: After a high tide the week before, the outflow of foreign funds from the local equity market reverted to its “normal” pace last week, according to MIDF Research.

However, MIDF Research head Zulkifli Hamzah said the year-to-date cumulative net foreign outflow rose to RM18.3 billion.

He also said the heavy swings in the movement of funds in the last two weeks proved to be a transient phenomenon.

He said investors classified as “foreign” remained net sellers on Bursa Malaysia last week and that foreign funds offloaded RM598.7 million net in the open market (i e excluding off-market deals), a sharp decline from the RM1.27 billion outflow the week before.

Zulkifli said foreign funds were net sellers every single day last week.

He said selling was relatively heavy on Monday and Thursday last week, reflecting a spillover of negativity from the previous week’s global paranoia and apprehension over emerging markets as a whole.

“For 2015, last week’s attrition raised the cumulative net foreign outflow to RM18.3 billion, almost three times the RM6.9 billion outflow for the entire 2014.

“More importantly, we believe the overhang of foreign liquidity in the market is now at its lowest since the financial crisis of 2007.

“We estimate the size of the overhang to have dropped to below RM10 billion for the first time last week, for funds which have come in since early 2010,” he said.

Zulkifli said foreign participation rate stayed elevated last week.

He said the average daily gross volume was RM1.14 billion, picking up from RM1.08 billion the week before.

“Nevertheless, we note that on Tuesday (last Tuesday), the volume was only RM1.15 billion although net sale amounted to RM216 million.

“Local institutions were passive buyers, mopping up RM539.1 million net on RM2 billion participation rate. Average volume had surpassed the RM2 billion mark in the last eight consecutive weeks,” he said.

Zulkifli said retailers remained net buyers, purchasing RM59.6 million, after a record haul for 2015 in the preceding week.

Nevertheless, he said participation rate eased to RM664 million, indicating falling speculative element in the market.

Commenting on regional markets, Zulkifli said it is early October and the equity markets around the world remain in a state of heightened uncertainty.

He said performances of markets that he tracked were rangebound last week and there were no particular outliers.

“The biggest headline news of the week was clearly the 29% single-day plunge in the share price of Glencore, the company ranked 10th in Fortune Global 500 in 2014.

“Friday’s (last Friday) US unemployment statistics delivered a new twist to the developing storyline which has the market bracing for a US rate hike later this year,” he said.

Zulkifli said China’s official Purchasing Managers' Index for the manufacturing sector came at 49.8 in September, after a reading of 49.7 in August.

That means the sector has contracted for two consecutive months.

“Foreign liquidity outflow from Asia eased noticeably last week, especially in the last two trading days,” he said.