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:

Greece:

• 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.

China:

• 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.

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

Throwback: 

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.

Summary

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!

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.

Summary 

(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.