The world's worst stock market is showing signs of life

Overseas investors poured a net $US84 million into the nation's stocks last week, the most since late January, Bloomberg-compiled data show. The FTSE Bursa Malaysia KLCI Index has clawed back about half of this year's more than 5 per cent loss that had made itInvestors have been sceptical about Malaysian Prime Minister Mahathir Mohamad since his election a year ago.

A market turnaround would be a boost to Prime Minister Mahathir Mohamad's struggle to win over investors since his historic election victory a year ago. Since then, more than $US3 billion of foreign funds have flowed out of the market amid a public spending clampdown. Now, the government is showing signs of easing its austerity drive and reviving large state projects.Hope of more interest rate cuts and earnings surprises at companies including Telekom Malaysia Bhd. and Tenaga Nasional Bhd.

Malaysia's sharemarket has started to rebound, but not everyone is convinced it will be a sustained recovery.Other investors seem to be looking past the well-known economic concerns. The stock gauge has rebounded 3.5 per cent since slumping to a 2015 low on May 24. The index is valued at 16.2 times projected 12-month earnings, down from this year's peak of 16.5 in March, data compiled by Bloomberg show.

Reforms at state-linked companies, more political clarity and stimulus could see the benchmark gauge surge to 1,800 in the base scenario, or even reach 1,900 in the bullish case, Macquarie Group Ltd.'s analysts wrote in a note on April 26. The gauge closed at 1,655.47 on Monday, the highest since March 22.

There is a "bottom getting formed" and we are buying stocks, which are showing signs of an earnings recovery, Areca's Wong said.

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