The Malaysian equity market has recently witnessed a substantial net outflow of RM357.7 million from offshore funds, continuing a trend of foreign investor exits for the second consecutive week. This trend aligns with the broader regional pattern of net selling in equities, reflecting a cautious stance among global investors.
Sectoral Impact
The financial services sector bore the brunt of the outflows, with a significant RM206.9 million net foreign outflow. This was followed by the consumer products and services sector, which saw RM131.4 million in net outflows, and the construction sector, which experienced RM110.1 million in net outflows. These sectors have been particularly vulnerable due to their sensitivity to global economic conditions and investor sentiment.
Conversely, some sectors managed to attract foreign investment. The industrial products and services sector recorded the highest net foreign inflow of RM104.4 million, followed by the technology sector with RM67.6 million, and the property sector with RM34.7 million. These inflows suggest a selective confidence among foreign investors in specific growth-oriented sectors.
Local Institutions and Retailers
While offshore funds were retreating, local institutions stepped up, maintaining their support for the market with a second week of net buying worth RM354.9 million. Local retailers also continued their net buying streak, albeit at a smaller scale, with purchases valued at RM2.7 million. This local support has been crucial in mitigating the impact of foreign outflows and stabilizing the market.
Global Economic Influences
The broader context of these movements can be traced back to global economic conditions, particularly the US inflation environment. According to MIDF, foreign investors were net sellers of US$579.4 million in equities across eight Asian markets, with Taiwan experiencing the highest net outflow. This trend underscores the pervasive influence of US monetary policy on global investment flows.
"We believe the moderation in inflation will allow the Fed to begin slashing interest rates towards the final quarter of the year, but if it remains elevated, there is a possibility that the Fed may opt for a higher-for-longer stance beyond 2024," said MIDF. This uncertainty around US interest rates has been a significant factor driving cautious investor behavior in emerging markets, including Malaysia.
Future Outlook
The Federal Open Market Committee (FOMC) is set to reconvene on July 31 to decide on their monetary policy direction. Based on the CME FedWatch Tool, there is an 89.7% probability that rates will remain unchanged and a 57.9% probability of a 25 basis points cut in the September meeting. These decisions will be closely watched by global investors and are likely to influence future investment flows into Malaysian equities.
The recent net outflow of RM357.7 million from Malaysian equities by offshore funds highlights the ongoing volatility and uncertainty in global markets. However, the continued support from local institutions and retailers provides a buffer against these outflows, underscoring the resilience of the Malaysian equity market. As global economic conditions evolve, particularly in relation to US monetary policy, these dynamics will continue to shape the investment landscape in Malaysia.
