PETALING JAYA: Once snubbed by foreign investors, Malaysian stocks are seeing the return of foreigners at a scale not seen in the last one year.

       The weekly net buying of the foreigners has consistently surpassed the retail and local institutional investors this year.

       International funds have been net buyers on Bursa Malaysia for 11 out of the first 13 weeks of 2022, with a net inflow of RM6.7bil year-to-date.

       Foreigners also showed increased interest in more sectors, including plantations, which have been affected by environmental, social and governance (ESG) concerns.

       In the week ended April 1, foreign investors were net buyers in the financial services and plantation sectors.

       Speaking with StarBiz, MIDF Research director and head of research Imran Yassin Md Yusof noted that foreign investors have shifted their attention to not only Malaysia, but also other Asean markets.

       In the week ended April 1, out of the four Asean markets tracked by MIDF Research, Thailand, Indonesia and Malaysia recorded net inflows of US$371.2mil (RM1.56bil), US$320.6mil (RM1.35bil) and US$127.4mil (RM536mil), respectively.

       The Philippines, on the other hand, saw a net foreign fund outflow of US$10.47mil (RM44mil).

       There are many factors that may have attracted foreign investors to Malaysian stocks, according to Imran.

       “The last time Malaysian stocks saw a total net inflow, on a yearly basis, was in 2017, so the recent net buying by the foreigners may be a rotation back into Malaysia.

       “Also, this may have probably been due to the effect on valuation as central banks in this region begin to tighten their monetary stance while Asean economies are expected to see comparatively better growth,” he said.

       The declining trend in foreign shareholdings started in May 2018, specifically after the 14th General Election (GE) on May 9, 2018 when Pakatan Harapan won a simple majority in the Parliament, heralding the first change in government in Malaysia’s history.

       Since then, the foreign shareholding level on Bursa Malaysia has fallen 4.1 percentage points from its peak of 24.2% in March 2018 to a trough of 20.1% in February 2022 due to political uncertainty.

       However, the recent strong interest in foreign investors boosted foreign shareholding to 20.3% in March, according to CGS-CIMB’s data.

       Imran also attributed the strong foreign fund net inflow into Malaysia to the Russia-Ukraine war, which has spooked the global capital markets.

       “The war in Ukraine further exacerbated this trend (inflow into Malaysia) as investors may have concluded that the war will cause lesser impact to Asean economies, in our opinion.

       “Furthermore, most of the Asean economies are commodity producers and will likely benefit from the high commodity prices,” he added.

       The Russia-Ukraine conflict that began on Feb 24 and the release of global pent-up demand following the reopening of borders have, among others, pushed up commodity prices.

       The price of crude palm oil (CPO) in Malaysia surged to its record-high of RM8,076.50 per tonne on March 2, and while the price has declined to RM6,357.50 by April 4, it remains well above the average price level of RM4,220 seen in April last year.

       Brent grade crude oil also rose sharply to a multi-year-high of US$127.98 per barrel on March 8, before settling at US$109.12 as at press time yesterday.

       Rakuten Trade head of equity sales Vincent Lau said foreign investor sentiment on Malaysian equities was boosted by the high CPO and crude oil prices, considering that the country is a producer of both commodities.

       He also pointed out that investors could be taking advantage of Malaysian stocks’ appealing valuation.

       “Local stocks have been quite beaten down in the past several months, so it’s not surprising that foreign investors are buying into the stocks.

       “Stocks with good long-term fundamental value will continue to benefit from the increased foreign investor interest,” he said.

       Lau also added that foreign investors could be attracted to Malaysian stocks given the likelihood of a general election in the coming months.

       Investors favour the presence of a stable government, and considering the recent state-level election results, Lau said foreign investors could be betting on a more stable federal government after GE15.

       “It can only get better for the Malaysian stock market after this, as long as there is no other black swan event.

       “Closer to the elections, local institutional funds could also likely increase their buying of local equities,” he said.

       In order to further accelerate foreign investor appetite in Malaysian stocks, Lau urged the government and the capital market regulators to engage more with the investors.

       “We need to sell more good news about Malaysia to the investors,” he said.

       When asked whether foreign investors’ increased interest in the plantation sector means that they are less concerned about the ESG issues, Lau said this was not necessarily true.

       “Plantation companies are not really bad in terms of ESG, especially considering that they have adopted responsible planting. You can see ESG related issues in other sectors as well.

       “I believe the shift by foreign investors into the plantation sector could be because they want to benefit from the high commodity prices and demand, at a time when other sectors including technology may have limited upside,” he said.

       Echoing a similar stance, MIDF Research’s Imran also said there are many plantation companies that comply with ESG standards.

       “Therefore, we believe that investors should be more discerning than to ignore a sector or company based on perception rather than doing the research,” he said.

       In the week ended April 1, the plantation sector recorded a net buying of RM100.4mil by foreign investors, according to CGS-CIMB’s data.

       The largest net buying by foreigners was in the financial services sector, with a net inflow of RM335.6mil.