Tuesday, 30 June 2015

Foreign funds continue to exit Malaysia and could Taiwan be the next investment potential?

Good news! MIDF Research has just released its Weekly Fund Flow Report for week ended 26th June, 2015. From the latest released report, here are some key points that you may find helpful in your investment decisions.

Market Snapshot
In terms of the Market Snapshot of the research  report, two key issue took center stage. One talks about possible Grexit and the other is on China's current bear market. Here are the key points from the market snapshot report:
  1. Last week, the market's was optimistic that Greece will strike a deal with its lenders.As it turned out, the meeting on Saturday was a non-event after Greece had unilaterally broken off negotiations over a new bailout deal
  2. Greek Prime Minister Alexis Tsipras has called for a referendum to take place on July 5 on the terms offered by creditors for the latest aid package. If rejected, a Grexit is inevitable.
  3. In China, the CSI300 was volatile and closed the week lower by -6.5%, all of which attributable to the -7.9% crash on Friday. There was an attempted recovery mid-week, but it was not sustainable and the bears took charge again towards the end of the week. After the crash last week, the consensus is that the Chinese market has seen its peak for the year. The question is whether the market will enter a bear phase.
  4. The CSI300 has retraced -19% from the peak. A 20% correction would normally be seen as triggering a bear market.
  5. The ChinNext index, which represents small-cap companies in Shenzen, had a harrowing week, falling -11.9%, with much of the loss registered on Friday as the index was routed -8.9% in a single day. The index has plunged 27% since its high on June 3.  
My comments:
  • Expecting further volatility for all markets around the world as long as there is no firm outcome for the Greece debt issue. Markets are expected to be uncertain especially in US, Europe, Japan and China. 
  • I also believe that majority of Greeks will vote in the referendum to accept the terms offered by creditors. The consequences of leaving Eurozone is just unimaginable.
  • One speaker in an investment conference that I've attended over the weekend mentioned that the China market is going through a correction phase. 
  • It is widely expected that the Shanghai Stock Exchange (SSE) Index will correct itself to the fair value mark of 3950 points.
  • As of 29th of June 2015, the SSE Index closed at 4053 points. Investors are advised to watch the index closely when it reaches the fair value of 3950 points. Breaching the the fair value mark (which also acts as a resistance line) could be a confirmation that the China market is turning bearish.
SSE Composite Index Major Correction

Fund Flow Report

1. For week ending June 26th, 2015, funds classified as “foreign” bought a marginal USD299.5 million net of listed equity in the 7 Asian stock markets (Thailand, Indonesia, Philippines, Korea, India, Taiwan and Malaysia). This was a significant turnaround from the USD2.3b sold in the preceding week.

2. In the three weeks prior, total net outflow had amounted to a whopping USD6.1b, the heaviest withdrawal phase since October last year.

Weekly Net Flow of Foreign Funds into 7 Asian Stock Markets
Referring to my previous post entitled "Foreign fund outflow a serious concern for Malaysia and could Korea be the next attraction for Investors?", for week ended May 29th, 2015, Korea enjoyed continuous inflow of foreign funds totaling up to USD8.3b since the start of the year! However due to an outbreak of MERS disease at Korea, we witness a massive exodus of foreign funds over a 2 week period. As a matter of fact for week ending June 12th and June 19th, a total of USD1.487b exited the Korea stock market! 

Summary of Foreign Fund Flow as of Week Ended 26th June 2015

Foreign Fund Flow as of Week Ended 26th June 2015
Key points:

  • Selling died down noticeably in Taiwan and Korea.
  • In Emerging Asia, foreign investors appear to have started nibbling in India and Thailand.
  • After withdrawing for three weeks in a row, foreign investors warmed up to Taiwan-listed stocks, and were net buyers last week.
  • Increasing optimism that the Taiwan market will perform well in the third quarter. The expectation is for the technology sector sales to rebound, earnings momentum to pick up, and Taiwan dollar, already the best performing Asian currency this year, to be more stable.
  • On Thursday, the Korean government announced a USD14b stimulus package to mitigate dented consumer spending and business sentiment.
My comments:
  • Most of major Asian markets will be affected by the Greece issue in the upcomming week. Even the supposedly optimistic Taiwan market lost 2.39% today (29th June 2015).
  • The best option for investors now is to play the wait and see game. It is wise to watch how the Greek issue unraveled before making any investment decisions.
Fund Flow - Malaysia

Local Retail, Local Institution and Foreign Market Participation in Bursa Malaysia
Key points:
  • Foreign investors have now been net sellers on Bursa for nine consecutive weeks. It has been the longest stretch of foreign withdrawal since the last three months of 2013.
  • Investors classified as “foreign” sold equity listed in the open market on Bursa (i.e excluding off-market deals) amounted to RM824.7m on a net basis. That was a significant jump from the RM372.4m sold the week before. 
  • For 2015, last week’s selldown increased the cumulative net foreign outflow to RM8.7b, surpassing the RM6.9b outfl ow for the entire 2014
  • Local institutions mopped up RM846.8m in the open market last week on active participation rate of RM2.13b. Local funds have mopped up RM9.9b this year, compared with RM8.2b in 2014. Retailers remained on the sideline.
My comments:
  • Fitch is expected to announce their evaluation of Malaysia's credit rating on the 30th of June 2015. It is widely expected that a downgrade is in on the cards.
  • Local and international uncertainties have dragged the Bursa down for the past one month. Another wait and see approach for me with regards to the Malaysia market. Further downside is expected.
The latest fund flow report by MIDF has provided all readers with some form of "tip" on which country to conduct further studies on. The foreign fund flow for week ended 26th June are indicating that there could be potential investing opportunities in the following countries:
  1. Taiwan
  2. India (although I am not to optimistic about this country)
  3. Thailand (similar to India)
  4. Korea (to watch for the MERS situation there)
Countries such as India and Thailand have been popularly promoted by many funds houses for the past couple of years. I believe there's not much potential upside for both countries.

On the other hand, I believe readers should look into Taiwan and Korea instead. North Asian countries such as Korea has been identified as a potential country for further investment by our local fund houses. 

Over the past couple of years, Taiwan has been overshadowed by China in terms of investment opportunities. With recent development as reported by MIDF Research, Taiwan seems to have in place all the right fundamentals for growth. This is certainly a potential country that readers should look deeply into.

That is all from me!

Cheers and Happy Investing!

P.S. : 
If you're interested to invest in these countries, it would be wise as usual to conduct your own due diligence first. 

In addition if I do find any information relating to the above mentioned countries, I will either post an article via IME Blog or provide quick updates on our IME Facebook Page. Don't miss out and remember to bookmark this blog and Follow Us on Facebook for future updates!

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