"Foreign Investors Withdrew RM203.2 Million from Bursa Malaysia": Trap or Opportunity?
•By Maher
Artikel ini juga tersedia dalam Bahasa Melayu
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Last week alone marked the 17th consecutive week of foreign fund outflows from Bursa Malaysia. Foreign funds were net sellers of Malaysian equities to the tune of RM203.2 million.
To support the domestic market and prevent the KLCI from continuing to slide, local institutions remained net buyers last week. This was achieved through net purchases of RM77.9 million.
Interestingly, local retail investors also turned net sellers. There was a net inflow of RM125.3 million in local equities.
According to the MIDF weekly fund flow report, the utilities sector recorded the highest net outflow of RM151.1 million. Meanwhile, energy recorded RM103.1 million and healthcare RM69.1 million.
The construction sector recorded the highest net inflow of RM64.9 million. Consumer products and services recorded RM38.4 million and financial services RM17.3 million.
Average daily trading volume (ADTV) increased across all categories last week. Foreign investors recorded an increase of 9.5%, while local institutions and local retail investors recorded increases of 9.9% and 7% respectively.
Continued foreign selling on Bursa Malaysia can have several negative effects on the market and the national economy, including:
Large-scale selling by foreign investors can cause significant selling pressure. This results in a decline in major indices such as the FTSE Bursa Malaysia KLCI (FBM KLCI). For example, in January 2025, the FBM KLCI recorded a decline due to heavy foreign selling. This situation affected domestic market sentiment.
Continued foreign fund outflows increase market uncertainty. This is because local investors may lose confidence in market stability, especially if the outflows are caused by rising interest rates in developed nations or geopolitical uncertainty.
The sale of equities by foreign investors usually involves transferring funds overseas. This can weaken the local currency (Ringgit Malaysia). This situation subsequently puts pressure on imports and increases the cost of goods.
Certain sectors targeted by foreign selling may experience additional pressure. For example, the utilities, energy, and healthcare sectors have recorded significant net outflows in recent weeks.
Although these outflows are negative overall, they also open opportunities for local investors. They can purchase shares at lower prices. Local institutions often take the opportunity to increase their holdings in high-quality stocks.
If outflows continue without effective recovery measures, it could undermine investor confidence in the Malaysian economy as a whole. This could hinder foreign direct investment (FDI) and slow long-term economic growth.
To address these effects, measures such as strengthening domestic economic policies are important. Enhancing the competitiveness of certain sectors is also crucial. Additionally, ensuring political stability can restore both foreign and local investor confidence.
This continued foreign selling may be caused by several key factors, including global and domestic developments that influence investor sentiment:
China, as Malaysia''s major trading partner, is experiencing a slowdown in its economic recovery. Weak export data and the Purchasing Managers'' Index (PMI) remaining in the contraction zone reduce demand for Malaysian raw materials and manufactured products. This negatively affects the plantation, energy, and technology sectors on Bursa Malaysia.
The robust US economy, with positive employment data, has led the Federal Reserve to maintain high interest rate policies. This policy makes US assets more attractive to foreign investors. Consequently, investors are inclined to withdraw capital from Malaysia and other developing markets.
Uncertain trade policies under the Donald Trump administration have raised concerns about the competitiveness of Malaysian exports, including the possibility of increased tariffs on Asian products. This situation reduces foreign investor confidence in the local market.
The introduction of a 2% dividend tax on amounts exceeding RM100,000 has affected company profit margins. The increase in labour costs due to mandatory EPF contributions for foreign workers has had a similar effect. Labour-intensive sectors such as plantations and technology are negatively impacted, making these stocks less attractive to foreign investors.
Global commodity price instability also affects related sectors such as plantations and energy. Foreign investors tend to sell their holdings in these sectors when the risk of uncertainty increases.
After a modest rise at the end of 2024, many investors chose to take profits from key stocks. Local institutional funds are also more cautious while awaiting clearer direction on global policies.
Overall, the combination of global factors such as US monetary policy and China''s economic slowdown, together with domestic issues, has triggered foreign fund outflows from Bursa Malaysia. Local factors such as dividend tax and high labour costs also play a role in this situation.
Retail investors on Bursa Malaysia can take advantage of several strategic opportunities, particularly in the current market situation characterised by foreign fund outflows and changing investor sentiment:
Some sectors recorded net inflows despite foreign selling, such as:
Financial Services: This sector recently recorded a net inflow of RM117.2 million. This indicates confidence in the stability and growth prospects of this sector.
Construction: With a net inflow of RM111 million, this sector benefits from domestic infrastructure projects. Foreign direct investment (FDI) in factory development and utility facilities also plays a role.
Technology: The technology sector, which experienced a net inflow of RM77.5 million, offers retail investors the opportunity to invest in technology-related stocks that have the potential to recover from previous declines.
The consumer sector, particularly essential goods, is currently at an attractive valuation. These stocks are trading at a price-to-earnings (P/E) ratio of 22.7 times, which is lower than the three-year average of 28.2 times. This opportunity allows investors to find undervalued stocks with long-term return potential.
Bursa Malaysia plans to list 60 initial public offerings (IPOs) in 2025 with a total market capitalisation of RM40.2 billion. This provides retail investors with the opportunity to participate in IPOs that potentially offer high returns.
Bursa Malaysia is expanding its product offerings, such as:
ESG-themed ETFs: Opportunities to invest in exchange-traded funds focusing on environmental, social, and governance criteria.
Commodity Structured Warrants: These innovative products are suitable for investors looking to capitalise on commodity price movements.
Shariah-compliant Products: Bursa plans to introduce new shariah-compliant products that are attractive to Islamic investors.
With foreign selling pressure pushing certain stock prices down, retail investors can seize the opportunity to buy high-quality stocks at discounted prices. Sectors such as technology and electronic manufacturing services (EMS), which are considered oversold, offer recovery potential as market sentiment improves.
Average daily trading volume (ADTV) has recently increased among retail investors (+1%), indicating growing interest in stock trading. This provides room for retail investors to capitalise on short-term trading opportunities or swing trading based on market fluctuations.
Retail investors can take advantage of these opportunities with a cautious strategy and thorough research. Focus on sectors with net inflows and new IPOs. Additionally, investing in undervalued stocks can yield good returns in the medium to long term.
Credit Image: Ajay Mohanty
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Foreign investors are leaving due to several factors including a strengthening US dollar, high interest rates in developed nations, geopolitical uncertainty, and more attractive performance in other markets. However, these outflows do not necessarily mean the Malaysian market is fundamentally weak.
Not necessarily. Foreign fund outflows can create buying opportunities for local investors as stock prices may fall below their intrinsic value. Savvy investors use this situation to accumulate quality stocks at discounted prices.
Retail investors can focus on stocks with strong fundamentals but whose prices are depressed due to foreign selling. Conduct your own analysis, identify companies with stable earnings and attractive dividends, then buy in stages.
Foreign investors typically return when the ringgit stabilises, the Malaysian economy shows positive growth, and global interest rates begin to decline. Positive sentiment towards Asian markets can also attract foreign fund flows back.
Foreign fund outflows are not the end of the world - they can actually be a golden opportunity for local investors who are prepared. The key is having solid knowledge to make wise investment decisions.
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