Monday, 13 July 2015

Malaysia suffers 11 consecutive weeks of foreign outflows! Plus other key fund flow highlights for week ending 10th July 2015

Here's the latest fund flow report from MIDF research for week ended July 10, 2015. There are some interesting findings that might be worth your time to read.

Market Snapshot:
  • There was a flurry of activity over the weekend to decide the fate of Greece, which has sought a third bailout to help it face its EUR320b debt mountain.
  • The CSI300 rose 5.7% last week after losing 27% in the preceding three weeks.
  • Bank of China injected Yuan35b into the money market through open market operations, the fifth cash injection since June 25, and said it will continue to support liquidity need of China Securities Finance Corporation Limited (CSF), the national margin trading service provider. 
  • China Securities Regulatory Commission (CSRC) said it would provide capital to mutual funds in order to increase liquidity to help offset redemption pressures. (Author's comment : This is an unprecedented move by China regulators. The Government is actually bailing out mutual funds!)
  • Authorities clamped down on “malicious short selling”.
  • China will also ban major shareholders from selling stakes in listed companies for six months. 

Snapshot of Major Asian Indices (%)

Asian Indices : YTD as of 10 July 2015

Author's comment : Despite the immediate yet draconian measures implemented by the Chinese regulators, the crash of China's market seemed to be in control at least for now. As of writing (13th of July 2015), the CSI300 has added another 2.563%. 

For international investors, we are not exposed directly to the CSI300 market where the so called A-shares are traded. A-shares can only be traded by the mainland citizens. Foreign investment is only allowed to trade A-shares through a tightly-regulated structure known as the Qualified Foreign Institutional Investor (QFII) system. 

Because of tight regulations imposed for A-shares, most China and Greater China unit trust funds from Malaysia tend to invest into H-shares and Red Chips which are traded at the Hong Kong exchange as well as B-shares which are traded at Shanghai and Shenzhen exchange.  

By investing into a mixture of H-shares, Red Chips and B-shares, most China and Greater China mutual funds are showing losses that are lower as compared to the losses from A-shares over the past 3 weeks. If you check my report on the Top 10 Performing Greater China Unit Trust funds as of 1st July 2015, you'll notice the average loss of the top 10 funds over a 1 month period is only -1.91% as compared to -17.97% loss suffered by the Shanghai Stock Exchange.

Fund Flow Report:
  • Investors classified as “foreign” were aggregate net sellers of listed equity in the 7 Asian stock markets that we track (Thailand, Indonesia, Philippines, India, Taiwan, Korea and Malaysia). The net amount sold surged to USD2.47b, the highest in a week this year
  • Foreign investors’ net sale in Korea surged to USD1.2b last week, the most this year. Korea appears to be among the hardest hit over the developments in Greece and China.
  • In Taiwan, foreign investors offloaded USD1.1b, the second highest in a week this year. However, the market was also struggling with a different kind of pressure. Taiwan was preparing for the arrival of Typhoon Chan-hom.
  • Heavy foreign attrition from Thailand where the amount of USD319m offloaded was the highest in a week this year. 
  • Meltdown in China cast a dark cloud over Bangkok as the Chinese market accounts for 12-13% of Thailand’s exports. 
Malaysia suffering the worst foreign fund outflow as compared to our closest neighbors

Weekly Net Flow of Foreign Fund

Tracking Money Flow - Malaysia
  • Foreign investors have now been net sellers on Bursa for eleven consecutive weeks. Last week, investors classified as “foreign” sold equity listed in the open market on Bursa (i.e excluding off-market deals) amounted to RM811.7m on a net basis. That was the 7th highest this year.
  • For 2015, last week’s selldown increased the cumulative net foreign outflow to RM9.8b, significantly surpassing the RM6.9b outflow for the entire 2014. 
  • Local institutions mopped up RM785.7m in the open market last week.
  • Local funds have mopped up RM11.2b this year, compared with RM8.2b in 2014.

Author's comment: It seems to me the local institutions are the ones supporting our local market. To me there are pros and cons to the foreign fund leaving Malaysian. 

Pros : Gradual reduction of foreign investment is way better then a sudden massive selling of foreign fund. History have shown that in a sentiment based environment such as the stock market, a sudden exodus of foreign funds could trigger panic which eventually would lead to a collapse in our stock market. Therefore, a slow and gradual exit of foreign funds is indeed a much preferred scenario for local investors as compared to the other one.

Cons : When foreign funds are net selling for 11 weeks in a row, it goes to show that Malaysia is loosing its attractiveness. Even with positive ratings given by Fitch early July 2015, the market continues to experience net foreign fund outflow! It is clear to me that as long as the RM42 billion debt problem is not resolved/clarified, we will continue to witness foreign funds exiting Malaysia.

The other trend that I noticed is the continuous buying by our local institutions over the past 7 weeks. If you are able to see the bigger picture, you''ll realize that it is us whom are actually buying up everything that was sold by the foreign investors. It is from the money that you and I have invested into local mutual funds, tabungs, danas and retirement schemes that are being used to purchase all that was sold by foreign funds. Is this a sustainable way to promote long term growth to the market? We all have to just wait and see. 

That's all for me! Cheers and happy investing!

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P.P.S : With uncertainties clouding our local stock market, ever considered diversifying your investment into other countries? If the answer is yes, try checking out some of these overseas funds available for Malaysian investors for as low as 0% sales charge! Click HERE to find out more.

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