MIDF: Worst of foreign sell down may have passed

PETALING JAYA: Global funds' aversion towards Malaysian equity continued for the fourth consecutive week, but at a subsiding intensity with the net amount offloaded by foreign investors falling to RM447.4 million last week on Bursa Malaysia compared with RM635.8 million the week before.
"Foreign investors sold aggressively from Tuesday to Thursday. The selldown peaked on Wednesday, when RM255.4 million was off loaded, the 10th highest in a day this year. It was also the 17th day this year that the net amount sold exceeded RM200 million," said MIDF Research head of research Zulkifli Hamzah.
"However, we note that the selldown tapered thereafter, and foreign funds started to nibble on Bursa again, turning net buyers, albeit marginally, on Friday," he said in his research note yesterday.
He said the worst of the foreign selldown may have passed as foreign participation rate declined to "moderate" (RM750 million to RM1.0 billion) from "elevated" (>RM1b) last week while daily average gross purchase and sale fell to RM952 million from RM1.22 billion.
"In contrast, local retail participation rose to its highest in four weeks. The retail average daily gross purchase and sale bounced to RM1.01 billion compared with RM832 million the week before. Retailers bought marginally at only RM200,000, but it was the second week in a row that they had been net buyers," said Zulkifli.
He said local institutions supported the market significantly for the second week in a row, mopping up RM447 million, compared with RM617 million the week before.
Participation rate remained elevated at RM2.08 billion, slightly higher than that the week before.
The KLCI closed in the redzone for the third consecutive week last week. For the year-to-date performance, the KLCI remained rooted at the bottom of the table with a loss of -1.4%.
According to him, the market is heading towards its worst September in three years as the KLCI had lost 1.4% for the month as of last Friday.
"There could be some end quarter window dressing in the last two trading days of 3Q14, but we do not expect much impact on the overall direction of the market. As we have expected, September has been an unpredictable month, exhibiting bias towards a broader market weakness," he added.
Zulkifli said it is particularly sanguine over October as the month had consistently generated meaningful return in the last five years.
Although the early part of October could be challenging, he expects it to be an excellent period for some serious accumulation and recommend investors to keep an eye on the KLCI components stocks.
"The KLCI is now hovering below the 200-day moving average (DMA) line, which is a long-term support indicator. We do not expect this situation to persist. After all, Budget 2015 is around the corner, and the spectre of the US Fed raising interest rates sooner than expected still remains a speculation at best.
"We are also crossing into October at times when the broader market fundamentals are not in favour of Malaysian equity. The ringgit was one of the weakest currencies against the greenback last week. Its weakness compared with peers widened in the last two weeks."
Zulkifli said Budget 2015 could be a risk to the ringgit which will probably weaken further if the government fails to hit its target budget deficit of 3.5% in 2014.
"Commodity prices are also on a downtrend with crude oil price below US$95pb (WTI) due to supply overhang as a result of booming US production and a surge in Libyan exports. This week is laden with statistics with the ECB also meeting on Thursday. We would remain cautious, keeping an eye for value picks."