Foreign funds were net sellers of almost RM5 billion worth of stocks over the past six weeks, during which some RM30 billion has been wiped off from the stock market.
FOREIGN funds were net sellers of almost RM5 billion worth of stocks over the past six weeks, during which some RM30 billion has been wiped off from the stock market.
The bad news is, the trend is expected to continue.
Nevertheless, analysts declined to concede that the market is entering bear territory.
"In fact, technically, we are not even in a correction mode yet. I think the market is going through a consolidation period, where it will go sideways for some time, it could be weeks, it could be months," Jupiter Securities head of research Pong Teng Siew told Business Times when contacted yesterday.
A technical correction is when the stock market has fallen 10 per cent from its peak. This means the benchmark FTSE Bursa Malaysia KLCI has to decline by 157 points from its peak of 1,576 points. So far, it has dropped to a low of 1,476 points - about 57 points shy of a technical correction.
A closer look at foreign funds shows they have bought RM12.13 billion worth of shares since February 2011, but have sold RM16.52 billion worth of shares in the same period.
During the period, the local stock market has lost about RM31.43 billion in value, to RM1.25 trillion.
Analysts said foreign funds have started to exit the local stock market, as well as other emerging markets, as early as mid-January this year, mainly driven by rising commodity and food prices.
When prices of food and commodities go up, consumers would have less disposable income. Analysts believe that in such a scenario, developed markets would be able to absorb the impact better than the emerging markets.
"That's why the funds are leaving the emerging markets, and moving back into the developed markets," said Pong.
Having said that, it does not mean that foreign participation would hit an all-time low this year.
"I think significant foreign funds will still be in the picture, it's just that their strategy may have changed from a long-term investment perspective, into a more short-term trading position," said Mercury Securities head of research Edmund Tham.
Retail investors are also consistently the net sellers on the local stock market, indicating they are also pessimistic on the market's short-term growth potential.
"Retail investors generally don't buy stocks and hold for long-term, they are looking for quick gains. So, we expect them to be net sellers when they see limited near-term upside on stocks," Pong said.
For the month of March, retail investors were net sellers every-single trading day, including on days when the benchmark index rose.
Despite several bad news recently, like Japan's earthquake and tsunami and unrest in Libya, analysts remained optimistic that the market will rebound.
Jupiter expects the benchmark index to hit 1,670 points by the year-end and OSK Research has a year-end target of 1,680 points.
"I believe that the market can hit 1,600 points easily by year end," said Tham.
- By Goh Thean Eu of btimes.com.my
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