Foreigners pull most cash from Malaysian stocks since 2013 as local funds support market

[KUALA LUMPUR] The gains in Malaysian equities since Mahathir Mohamed's shock election win haven't stopped an exodus of foreign money from gathering pace - with this year's almost US$1 billion of overseas inflows into the market at risk of being wiped out.

The nation's stock market had a volatile start following a three-day holiday for the election, before the benchmark inched up 0.4 per cent for the week. But alongside that advance, overseas investors have been taking flight, selling US$625 million of stocks last week, Malaysia's biggest stock outflow since August 2013, according to data from Bursa Malaysia Bhd, the nation's stock exchange.

"The main transactions are being done by the local funds to support the market along with retail investors," Danny Wong Teck Meng, chief executive officer at Areca Capital Sdn. said by phone in Kuala Lumpur. "The local guys are much more confident for the prospect of the country than foreigners."

Mahathir's attempt to soothe investor jitters haven't staunched the flows. The new prime minister introduced a team of five advisers well-known in official and business circles in Malaysia and intensified efforts to seek evidence of wrongdoing at the 1MDB sovereign fund. Foreign inflows had dwindled to just US$10.3 million as of Friday, down from US$937.8 million on April 30, the data show.

So what's keeping the stock market afloat? The price of oil has rallied, which will help boost government revenue and oil and gas contractors in Malaysia. There are also local funds that believe Dr Mahathir will follow through with his promise to find ways to boost the stock market and lead a business-friendly administration.

The Bursa Malaysia Consumer Product Index rallied 7.9 per cent last week to a record after the government said it would effectively remove a consumption tax effective June 1. The gauge rose as much as 1 per cent on Monday, while the FTSE Bursa Malaysia KLCI Index climbed 0.6 per cent.

Some strategists remain unconvinced by the market gains. CGS-CIMB Securities, which lowered its year-end target for the benchmark at 1,820 before the election, reiterated the projection on May 21. UOB Kay Hian Holdings and Nomura Holdings said last week they were reviewing their views on the main measure and equities. On the flip side, Malayan Banking Bhd has expressed optimism for financial markets following the election.

BLOOMBERG