TheEdge
PETALING JAYA: The outflow of portfolio funds is expected to continue for the rest of the year in view of the political tension engulfing the country and the lack of support for regional currencies, including the ringgit.
“The recent shift in the flow of funds, especially out of the equity market, is not only confined to Malaysia but is a regional phenomenon as investors tend to return to the stable havens of the developed markets in volatile times,” HwangDBS Investment Management Bhd’s chief investment officer David Ng told The Edge Financial Daily.
He said HwangDBS would take the “look West” stance by parking some of its investments in stable and developed economies that provided potentially high-yielding returns, while it would also hold a considerably high level of cash as it moved into the remaining half of this year.
“We will continue to take this stance as we wait for positive cues in the local and regional markets, before seeking to deploy more funds into the equity markets as the weakening currencies make Asian equities to dollar investment less attractive and political instability may continue to deter foreign investments from our shores,” Ng said.
It has been reported that the second quarter of this year had suffered an unprecedented outflow of portfolio funds to the tune of RM32 billion, driven partly by unrelenting political tension since the March 8 general election and the broad selloff of the stock market.
The outflow from the commodity market and the downswing of CPO price were also caused by the weak crude oil price and improving supply prospects for global edible oils.
Last Thursday, the Kuala Lumpur Composite Index (KLCI) fell to a 22-month low at 1,041.07 as foreign funds continued to sell down on heavyweight plantation and finance stocks. The benchmark index rose 2.96 points to 1,044.03 the next day. The ringgit, meanwhile, fell to its 52-week low of 3.4710 per US dollar last Thursday, and also recovered slightly to 3.4525 per dollar the following day.
Nevertheless, Ng said in a bull market environment, emerging markets would tend to be the prime recipients of foreign capital inflows due to the obvious growth potential.
He would not dimiss the fact that Malaysian corporations with sound fundamentals such as those in the soft commodity space, namely crude palm oil (CPO), were beginning to emerge as an attractive asset class after its valuation recently took a beating from the slide in CPO prices.
“We believe that it will, in the long run, continue to benefit from strong demand in the emerging markets such as China and India due to increase use of biodiesel source of energy globally,” he said.
Analysts have said CPO price may rebound by year-end despite the European Union (EU) finally voting to lower the target for using biofuel in road transport to 6% last week.
Last Friday, CPO for November delivery on Bursa Derivatives rose RM71 to RM2,380. It was traded at a peak of RM4,486 per tonne on March 4, according to Bloomberg data.
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