Rakuten Trade research head Kenny Yee said since July, foreign funds have begun to look at this region. “We are seeing net inflows of foreign funds and hope this will continue to year end as foreign funds have begun to diversify.
“There is more risk than reward on Wall Street at the moment, and come November, if there’s another rate hike, Wall Street will see another sharp decline.
“Hence, foreign funds are taking advantage of the current low valuations and weak currencies within the region to diversify their portfolios,” Yee said at Rakuten’s fourth quarter market outlook media briefing.
He also highlighted the improvement in foreign shareholdings on the local bourse. “Towards the end of 2021, foreign shareholdings declined to a low of 11.35%. It has steadily improved to 14.41% in August 2023,” he said.
He said this is happening because most of the funds flowing into Malaysia are long term, and not the short-term “day trippers”.
Foreign investors continued to net buy on Bursa Malaysia at RM550.9 million a week ago, which was the highest net foreign inflow over the past eight weeks.
Yee said the continued inflow of foreign funds into the local market could help spark a revival in retail participation.
Bursa Malaysia’s steady improvement
Compared to last quarter when the KLCI was down almost 8% year-to-date (YTD), the index has improved and is only down by 3% YTD, he noted.
Yee added valuations within the Asean market are below their historical average, with the FBM KLCI hovering at 15 times price-earnings ratio (PER) which is below the five-year average of 17.3 times.
Citing Bloomberg data as of Sept 22, he pointed out that Singapore, Thailand, Indonesia, and the Philippines are also below their five-year historical average PER.
On the ringgit, Rakuten believes that the currency will strengthen to around the 4.20/4.30 range by end-2023 on the back of easing trends in the US.
Furthermore, he anticipates Bank Negara Malaysia (BNM) will maintain the overnight policy rate (OPR) at 3% until the end of 2023.
Rakuten has assigned “overweight” ratings to the auto vehicles, banking, construction, gaming, oil & gas, real estate investment trusts (REITS), telecommunications, and utilities sectors.
Its top five picks are Maybank, Tenaga Nasional, CIMB, CelcomDigi, and Public Bank.
For small caps, Yee likes Kerjaya Prospek Group Bhd, Kumpulan Kitacon Bhd, ITMAX System Bhd, Muhibbah Engineering Bhd, and DC Healthcare Holdings Bhd.