stock market next year PETALING JAYA: Next year should be a better year for the stock market, driven largely by the optimism of a synchronised global economic recovery as the world emerges from the Covid-19 pandemic AmInvestment Bank said this in a strategy report yesterday, believing that the recovery-focused investment theme from end-2020 will extend well into next year. Even so, the Malaysian stock market appears to have lost its lustre in the eyes of foreign investors, judging by current data. Based on fund flow data, there was a whopping RM24.88bil in net outflow of foreign funds this year until Dec 11.Improving outlook: A retail investor monitors share market prices in Kuala Lumpur. Overall non-resident participation in the MIST capital markets have begun to see improvements in recent months, particularly after positive newsflow on the Covid-19 vaccine. In contrast, for the full year 2019, net selling by foreign investors stood at less than half of the amount at only RM11.1bil. According to AmInvestment Bank head of equity research Joshua Ng, while international investors have ramped up their purchase of equities in many emerging markets since October 2020, they have continued to pull money out from the Malaysian market. Foreign investors were net sellers for all weeks since October except for the week ended Nov 6 that saw a decent net inflow of foreign funds worth RM115.14mil. India, on the other hand, enjoyed an increasing foreign fund inflow into equities in the same period. Within the South East-Asian region, Indonesia has seen a steady net inflow of foreign funds since the last week of October, although this has turned into net outflows over the past two weeks. Ng acknowledged that the Malaysian stock market has been flying under the radar of foreign investors. “(This is) due to Malaysia’s insignificant and shrinking weighting in the MSCI Emerging Markets Index, the market’s inherently high valuations, coupled with the lack of tech startup listing, ” he said in a note. However, Ng said there is a silver lining to the low foreign participation in the local market. “Dominated by local participants, the market has remained calm in the face of a dynamic local political landscape. “We are more inclined to take the return of foreign investors to our market, if it happens, as an added bonus, ” he said. Meanwhile, CGS-CIMB Research said foreign funds are “severely underweighted” in Bursa Malaysia. However, the research house pointed out that a weak US dollar could spark the return of foreign investor interest in emerging markets, including Malaysia. This would spur further gains for the domestic stock market, which has witnessed renewed positive sentiment among investors in recent weeks. “A stronger ringgit has historically been positive for the market and could lead to the return of foreign investors that have exited the market over the past few years on concerns over political uncertainty and weak corporate earnings. “Our economist is of the view that an environment of a synchronised global economic recovery, low yields, disinflation and ample liquidity support creates fertile conditions for the reflation trade to rotate into risk assets including emerging markets’ foreign exchange, ” it said. CGS-CIMB Research pointed out that overall non-resident participation in the MIST capital markets have begun to see improvements in recent months, particularly after positive newsflow on the Covid-19 vaccine. MIST refers to Malaysia, Indonesia, Singapore and Thailand. “Sharp capital inflows could cause interim overshoots in MIST currencies, and broadly we expect the annual average exchange rates in MIST to strengthen by 4% to 5% in 2021 against the US dollar, backed by widening growth, inflation and balance of payments differentials, ” it said. On the local stock market outlook, CGS-CIMB Research said the market is expected to do well in the first half of 2021 (1H21) before facing challenges in the last six months. “Our less positive outlook on the market for 2H21 is premised on concerns that corporate earnings growth rate could peak by the second quarter or disappoint in 2H21, stimulus measures to support businesses and individuals will progressively end in 2021, incremental liquidity available to retailers will likely decline against a year ago as well as the temporary suspension of short-selling which began on March 24 could end by Dec 31. “We maintain our FBM KLCI target of 1,628 points for end-2020 but raise our end-2021 target to 1,759 points, from 1,732 points, to reflect changes in FBM KLCI constituents, ” it said.
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