Foreign funds return to Bursa Malaysia after six-month exodus

[MALAYSIA] After 26 weeks of net selling, foreign investors have returned to Bursa Malaysia, marking a net inflow of RM332.3 million.

This shift in sentiment among foreign investors mirrors broader regional trends, with Asian markets benefiting from a stronger global risk appetite. Analysts attribute the renewed foreign interest to improving macroeconomic conditions, including easing inflation in major economies and expectations of a less aggressive stance on monetary policy by the US Federal Reserve. These factors have collectively made emerging markets, including Malaysia, more appealing to foreign capital.

The domestic market, which had experienced consistent selling pressure from offshore funds since October 2024, saw a rebound in foreign interest, fueled by an increase in risk appetite.

MIDF Research reports that foreign investors became net buyers in key Asian markets last week, with a significant net inflow of RM2.88 billion after three consecutive weeks of outflows.

Among the sectors that drew the most foreign inflows in Malaysia, the financial services sector stood out, benefiting from resilient earnings and attractive valuations. Banking stocks, in particular, garnered attention as interest rate expectations stabilized, alleviating concerns over margin pressures. Additionally, the appeal of the telecom and media sectors may be tied to ongoing digital transformation trends and the steady dividend yields that are favored in uncertain market conditions.

On Bursa Malaysia, the sectors that saw the highest net foreign inflows were financial services (RM197.1 million), telco and media (RM60.8 million), and industrial products and services (RM48.8 million). Conversely, the energy (RM16 million), plantations (RM16 million), and healthcare (RM13.3 million) sectors experienced the largest foreign outflows.

The energy and plantation sectors, which faced outflows, continue to struggle with volatile commodity prices and weaker demand forecasts. Crude oil prices have remained under pressure due to fluctuating global supply conditions, while palm oil exports have been affected by slower demand from key markets such as China and India. These challenges likely prompted foreign investors to reassess their allocations in these sectors.

In response to the shifting market dynamics, local institutions turned net sellers, offloading RM267.4 million in local equities after 26 weeks of net buying. Local retail investors, meanwhile, were net sellers of RM64.8 million in local equities, extending their outflow streak to two weeks.

The retreat by local institutions suggests a more cautious stance following an extended period of buying, possibly aimed at locking in profits or rebalancing portfolios ahead of upcoming economic data releases. Retail investors, on the other hand, may still be wary of lingering market uncertainties, despite the recent uptick in foreign participation.

The average daily trading volume (ADTV) saw a general increase across most categories, except for foreign investors. Local institutions and retail investors saw rises of 23.8% and 2.2%, respectively, while foreign investors experienced a 6.9% decline.