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PETALING JAYA: The local bourse is in dire need of liquidity as the Malaysian and other regional markets have experienced massive foreign outflows, according to Rakuten Trade’s head of research Kenny Yee (pix).

Yee said Malaysia saw record high foreign outflow in 2020 amounting to RM24 billion, while year-to-date foreign outflow totalled RM5.9 billion, and only retail showed positive inflows amounting to RM9.3 billion.

“Retail participation remains the hero for the local bourse as depicted from the persistent positive monthly inflows since January 2020. The total inflow for 2020 was RM14.2 billion, pushing the 2020 and 2021 total to RM23.5 billion,” Yee told reporters at a virtual media briefing today.

He said due to the incessant selling by foreign funds, almost all of the Top 10 FTSE Bursa Malaysia KLCI constituents are trading below their historical price-to-earnings ratio (PE ratio).

“Apart from Bursa Malaysia Technology Index and Bursa Malaysia Transportation and Logistics Index, the others are all trading below their historical PE ratio.

“It is obvious that the local bourse is in dire need of liquidity. While the retail portion is already in place, inflows from foreign funds would be of utmost importance,” Yee said.

He added that it is difficult to gauge when there will be an influx of foreign funds. However, the research house reckons that it is a matter of time when foreign funds trickle back to the Asian region.

“The catalyst for foreign inflows could be, as we go to the end of 2021, there will be repositioning of funds. Maybe some of these foreign funds will be looking for other avenues, that is why we are expecting some inflows of funds to the Asean region,” he said, adding that easy money is no longer available on Wall Street, hence many may seek new avenues.

“Valuation wise, US equities are trading at around 50% above historical average. Though corporate earnings remain robust, growth should retrace back to normalcy,” Yee said.

Looking ahead, he said regional volatility will very much depend on the situation on Wall Street.

“Though volatility may have shrunk for now, we can expect it to heighten as expectations of tapering draw closer in the US.

“We are encountering an intermission in recovery due to Covid-19 and the country’s political climate remains fluid. Thus, we foresee the ringgit strengthening against the US dollar amid crude oil price recovery coupled with the anticipated homecoming of foreign funds.

“All in all, we expect the ringgit to trend between RM4.10 and 4.15 against the US dollar by end of this year.

“We expect the FBM KLCI to possibly touch 1,650 based on 14 times CY21 P/E ratio by end-this year supported by solid earnings growth as well as alluring valuation and returning of some foreign funds,” Yee said.

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