Tuesday, 9 June 2015

Foreign fund outflow a serious concern for Malaysia and could Korea be the next attraction for Investors?

Two days ago, I came across a report by MIDF Research entitled Fund Flow Report (Week ending 29th May 2015). It is an interesting read as the report highlighted the money flow of foreign investors at seven (7) major Asian stock markets (Korea, Thailand, Indonesia, Philippines, India, Taiwan and Malaysia)

After reading the report, I believe that this information should be highlighted to all Invest Made Easy readers. Movement of foreign fund is vital for us investors to gauge the confidence of foreign investors in a particular country. This information can also be used as a reference point to help us decide which country is worth investing in. 

Since the report is rather wordy, I'll try an extract the key points of the report for ease of reading.

Weekly Net Flow of Foreign Fund into Equity
Shown below is the table of weekly net flow of foreign fund into equity from week ending April 17th till week ending May 29th:

Weekly Net Flow of Foreign Fund into Equity
(Click to Enlarge)
Key points from the table above:
  • For week ending May 29th, only USD121.5m net listed equity flowed into the 7 Asian stock markets. It was a sharp reversal in net money movement compared with that the week before where USD 966.7m flowed in.
  • For the third week running, the most favored Asian destination was Korea. The current wave of foreign money flow to Korea has now extended to 15 weeks. An estimated USD8.3b of global fund has entered Korean equity so far this year, the highest among the 7 markets.
  • In Jakarta, foreign investors sold for the fifth consecutive week, albeit in moderate amount. The worse may be over as the rupiah was relatively stable last week, and bond prices bottomed as the market appear to have priced higher inflation ahead.

Foreign Fund Money Flow in Malaysia
Malaysia is currently experiencing heavy outflow of foreign fund as indicated in the picture above. Let us find out what are the key points highlighted in the research report. My advice is for you to read and understand each point carefully:

  • Foreign investors shifted into top gear in their disposal of stocks listed in Malaysia
  • Fifth week running, foreign investors were net sellers of Malaysian equity. 
  • Investors classified as “foreign” sold equity listed in the open market on Bursa (i.e excluding off-market deals) amounted to -RM999.8m on a net basis last week.
  • In May, foreigner investors had offloaded -RM2.54b in the open market.
  • Cumulative net foreign outflow in 2015 to -RM5.75b. In comparison, the cumulative foreign outflow for the entire 2014 was -RM6.93b.
  • Local institutions had a busy week mopping up RM997.2m in the market. In May, local funds bought a net amount of RM2.70b.

(Personal opinion, not part of MIDF report)
The rate of foreign fund exiting Malaysia market is increasing drastically. We witness RM2.54 billion exiting the country in the month of May itself. The total outflow for 2015 is currently at RM5.75 billion, closing in on the total outflow of RM6.94billion in 2014.

Will we expect further outflow in June and the coming months? The most probably the answer is YES. 

What's causing the net outflow of foreign fund from Malaysia? I believe these are the reasons:
  1. The RM42 billion debt issue created by a certain Government owned company.
  2. Possibility of a downgrade in Malaysia's sovereign rating by Fitch later this year.
  3. Depreciation of Malaysian Ringgit.
  4. Better opportunity of investment elsewhere. In this case, Korea seems to be the star attraction.
Korea the next potential investment opportunity for Malaysian investors?
Somewhere in April 2015, I posted an article entitled "Undervalued Country for Investing, Is there any left?". In that post, I listed down and analyzed 6 countries (China, Japan, Australia, UK, South Korea and Brazil). All 6 countries were considered undervalued as of August 2014. The outcome of the analysis as shown in the printscreen below:

Gains made from 11 Aug 2014 to 22 April 2015 with reference to respective country's stock market index

As you can see, South Korea's Stock Market (commonly known as KOSPI) gained about +5.55% from from 11 Aug 2014 to 22 April 2015. In relative comparison, the South Korea market still looks pretty undervalued in comparison with gains made by China and Japan.

The surprising thing is that despite the continuous net inflow of foreign fund into KOSPI, the index have shed 1.54% between 22 April 2015 to 28 May 2015. See chart below:

Why the KOPSI posted a loss over the one month period will not be covered in this blog post. Neither will we be discussing about the direction the KOSPI will be heading in the future.

The challenge now is for the investor to make a decision based on his/her own research. There's an abundance of economic report and market outlook available on the internet which you can read, learn and ultimately make your own judgement call. By doing so, you're in fact learning how to fish instead of waiting for the fish (which could be rotten) to be given to you.

You've decided that Korea is worth investing in, which unit trust fund should you invest in?
As of my knowledge, there is no one fund that invest specifically into Korea.

However there is one fund that which allocates approximately 15% of their total asset into the Korea equity market. The percentage is consider high in comparison to other funds of the same category which only allocate between 8%-10%.

The plus point of this fund is that 30% of its asset is invested into Hong Kong and none into China. To know why investing into Hong Kong is a plus point, just click HERE to find out.

Another plus point of this fund is that exposure into Malaysia equities is only 1.81%. With such low exposure, any major catastrophe to the Malaysia stock market would have minimal impact towards the performance of this fund.

Summary of the fund's asset allocation by country as of 30th April 2015 is shown below:

Fund asset allocation by country

What is the name of this fund?
Unfortunately I'm unable to publish the name of this fund in this post to prevent any acquisition of bias towards a particular fund or fund house. To find out the name of this fund, you may email me personally at shanesee03@gmail.com

That is all for now! Cheers and Happy Researching!

P.S : Here's a tip from me to help you save when investing in this fund. The reason being that the fund is one of the 40 selected funds that is undergoing a sales charge promotion. There's still 9 more days to go for the "Invest for as low as 0% Sales Charge" promotion, so head on over and check out the details HERE

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