Malaysia stocks in 'sweet spot' as inflows quadruple

Published: 2009/06/26

Foreign funds were net buyers of US$154 million worth of Malaysian shares last month, against US$36 million in April, according to Emerging Portfolio Fund Research statistics
MALAYSIAN stocks lured net foreign purchases for a second month in May, quadrupling from April, signalling the stock market is poised to catch up with its regional peers, CIMB Investment Bank Bhd said.

"Appetite for emerging markets is growing and Malaysia is in a sweet spot given its status as a lower-beta market and the fact that it has lagged behind its regional peers," Terence Wong, an analyst at CIMB, said in a report yesterday. "It could play catch up. Inflows will increase significantly in the coming months.

"Foreign funds were net buyers of US$154 million (US$1 = RM3.53) worth of Malaysian shares last month, compared with US$36 million in April, Wong said, citing statistics from Emerging Portfolio Fund Research, which collects data from more than 600 foreign funds.

The Kuala Lumpur Composite Index has risen 22 per cent this year, trailing behind Southeast Asian benchmark indexes even as Prime Minister Datuk Seri Najib Razak announced stimulus plans valued at RM67 billion to restore economic growth.

The amount of foreign stock purchase "remains very small", compared with more than US$800 million in the January- February 2007 period, Wong said. The Malaysian market is still the most "heavily sold down in the region," he said.Since February 2008, foreign funds have scaled back their Malaysian holdings by a "whopping" 40 per cent, compared with only 7 to 15 per cent for its regional peers, Wong said.

Malaysia's weightings in emerging markets in Asia have also shrunk more than any other country in the region, to a record low of 2.2 per cent from almost 4 per cent, Wong said, adding that it's "even lower than Asian-crisis levels".The benchmark Kuala Lumpur Composite Index added 1.1 per cent to 1,069.21 as of 11.34 am local time.

The measure jumped 14 per cent in April, the best monthly gain in a decade. Investors are very "underweighted in Malaysia and are looking for stock ideas," he said, based on feedback during his sales meetings in Singapore and Hong Kong. - Bloomberg