KUALA LUMPUR (April 1): Foreign institutional, retail and local retail investors have emerged as the largest net buyers in Malaysian equities with a combined net value of almost RM6.89 billion invested (as at March 30), contributing to a meagre 1.27% or 38.31 points year-to-date gain in the the domestic benchmark index FBM KLCI, which closed in the green at 1,587.36 points on the last day of the first quarter in 2022 (1Q22). 

Local institutional investors and nominees had sold just as much Malaysian equities at a total value of RM6.89 billion on the penultimate day of 1Q22, according to fund flow data on Bloomberg and Bursa Malaysia.

Market observers believe that local institutional investors, particularly the nation’s largest retirement fund, the Employees’ Provident Fund’s (EPF), had been rebalancing its portfolio by taking profits and preparing for the surprise fourth withdrawal announced on March 16.

Nonetheless, MIDF Amanah Investment Bank Bhd research head Imran Yassin Yusof said foreign fund net inflows so far this year have been encouraging. He believes this trend will likely continue into the second quarter of 2022 contingent on three factors: the unresolved Russia-Ukraine conflict, elevated commodity prices and unmarred expectations of better economic growth.

“Out of the 68 trading days, there have been 59 days of net inflows, evidence of a strong trend in our opinion. In comparison, during the same period, we have observed a net outflow of RM1.43 billion, RM7.74 billion and RM1.35 billion in 2021, 2020 and 2019 respectively,” Imran said.

A local analyst added that the recent trend signals improved investor confidence, while noting that investors have moved on from Russia and China to seek for better yields in the ASEAN region. 

“If you look at the MSCI AC ASEAN Risk Weighted Index, Malaysia’s weightage is higher than most of its neighbours, which has some benefit but the long-term trend depends on whether we can attract more investors than our ASEAN neighbours such as Indonesia and Philippines,” the analyst added.

Despite crude palm oil (CPO) prices retreating from record highs, the plantation sector remains the best performing sector with the KL Plantation Index gaining 21.38% YTD, while the KL Technology Index lost 19.89% YTD from the lofty valuations ascribed to the sector in 2021, based on Bloomberg data. 

Market darlings during the pandemic such as the healthcare sector and ACE Market-listed companies have suffered YTD declines of 9.28% and 12.47% respectively, as investors are expecting the pandemic to be over, while seeking out stable earnings. 

Imran also said that the most favoured sector by foreign investors has been the financial services sector, which received RM2.8 billion in bought value and returned 7.79% YTD.

“We opine that this is akin to a vote of confidence in Malaysia's economic prospects, given that banks and the finance sector are strongly tied to the performance of the economy,” Imran said.

He adds that foreign investors also favoured industrial products & services and plantation companies, with net buys of RM2.1 billion and RM1.6 billion respectively, despite the ESG (environmental, social & governance) concerns in the latter.

Meanwhile, the analyst has singled out oil & gas service providers as the dark horse,as the Brent crude oil rally and a potential ramp up in capital expenditure (capex) cycle by upstream players could see these companies re-rated in the near future.

“The lack of investment and capex after the oil crash in 2014 has dragged these companies’ earnings down but the upstream giants will have to start soon to avoid further supply shocks, so that is a positive point for oil & gas companies,” the analyst said.

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