The lack of interest by foreign investors in the stock market here boils down to the lack of growth in Malaysia. – AFPPIXMalaysia’s corporate earnings picture will be the main clue to the domestic equity market’s outlook in the midst of the Covid-19 pandemic.
Drawing from the lessons of the global financial crisis of 2009, Fauzi said there was a lag of about three months between the index hitting bottom and the end of the earnings downgrade on the equity market. Should history repeat itself, Fauzi expects Bank Negara Malaysia’s upcoming GDP announcement to mark the bottom of the current crisis and the corporate earnings downgrade to end in the second quarter of 2020, which aligns with the three-month lag seen in the previous crisis.
Since the global financial crisis, Malaysia has seen foreign outflow of RM24 billion, which has accelerated to RM18.5 billion in the first six months of 2020, and foreign ownership stands at a record low 21%. However, the head of research acknowledged that there has been some foreign inflows into certain sectors such as rubber gloves, which indicated that foreigners do put money into a country where they see earnings growth and improvement in returns.
However, he believes that there will be a reversal from the current emphasis on equities with a growth trait, which has driven investors into the technology sector, as some investors would move back to prioritising value.“When that move takes place, you will see a fair amount of capital trickle back into the Asean region and Malaysia could see some of that inflow as the selling over the past few years has been excessive,” he said.