Jun 30, 2015


Worst June in 7 years? Oil is not helping the Ringgit.

•  The ebbing tide was a fleeting respite. After the outflow appeared to be receding, heavy foreign
selling resumed last week.
•  Foreign investors have now been net sellers on Bursa for nine consecutive weeks. It has been the longest stretch of foreign withdrawal since the last three months of 2013. Last week, investors classified as “foreign” sold equity listed in the open market on Bursa (i.e excluding off-market deals) amounted to RM824.7m on a net basis. That was a significant jump from the RM372.4m sold the week before.
•  It was a relatively intense week of foreign selling. Foreign investors were net sellers in the open market every single day of the week, although we note that the situation was similar in Jakarta and Manila. The net sale amount was >RM100m every day. On Thursday, the net outflow surged to RM269.2m, the ninth highest in a day this year, and the 21st day that the amount had exceeded the RM200m mark. In comparison, net daily foreign sale in the open market exceeded RM200m on 23 days in 2014.

money flow malaysian equity

•  With two trading days left, the cumulative outflow for June 2015 is set to exceed RM3b. It would be the biggest monthly outflow since January 2014. For 2015, last week’s sell down increased the cumulative net foreign outflow to RM8.7b, surpassing the RM6.9b outflow for the entire 2014.
•  We note, however, that the heavy selling last week was on the back of moderate volume. Indeed foreign participation (daily average gross purchase and sale) dropped significantly by 23% to RM788.8m, the lowest this year (even lower than during the Chinese New Year).
• Local institutions mopped up RM846.8m in the open market last week on active participation rate
of RM2.13b. Local funds have mopped up RM9.9b this year, compared with RM8.2b in 2014. Retailers
remained on the sideline.

•  Telekom Malaysia recorded the highest net money inflow of RM17.89m last week. However, its share price underperformed the broader market with a -2.34% weekly fall. In comparison, the FBM KLCI was down by a smaller -0.66% during the review week. According to a stock fi ling on 25 June, EPF sold 904k shares of TM. But it is of note that net money inflow amidst retreating share price indicates buy on weakness (BOW) stance among some investors.
•  Axiata came in second with RM14.39m net inflow and its share price outperformed the market benchmark albeit slightly with a -0.62% week-on-week decline. As stated earlier, net money infl ow amidst retreating share price may indicate investors’ BOW stance.
•  Public Bank, the nation’s third largest banking group, recorded the third highest net money
inflow of RM11.46m but its share price slightly underperformed the FBM KLCI with a -0.95% weekly fall. Similarly, some investors may be taking BOW stance on this stock.

Top 10 Money Flow Bursa Malaysia Stocks
Left: 10 Money Inflow                   Right: Top 10 Money Outflow

top 10 malaysia stocks 
•  KL Kepong saw the largest net money outflow of – RM8.78m during the review week. Nonetheless, its stock price outperformed as it ended the week lower by merely -0.37%. This was against a slightly bigger -0.66% decline in the FBM KLCI.
•  Top Glove came in second last week with a net outflow of –RM4.15m but its share price outperformed the market benchmark with a 1.52% weekly gain. The positive price movement was arguably due to its good 3QFY15 results. It is also notable that the net money outflow amidst rising share price may indicate sell on strength (SOS) stance among some investors.
•  Malayan Banking registered the third largest net money outflow at –RM3.48m in the review week. Its share price slightly underperformed the broader market with a -0.86% weekly decline.

Money flow indicates whether a particular stock is being more heavily purchased or sold. Money flow generally confirms price trend. As price rises, money flow is usually positive, vice versa. A divergence may portend a reversal in price trend. A rising stock price with a negative money flow can indicate a future price correction, vice versa.
How is money flow calculated? When a trade is performed, its price is compared to the price of the previous trade (the first trade of the day is compared to the previous day’s close). If the prices differ, either upticks or downticks, the value of the trade (price multiplied by number of shares) is added to or subtracted from the money flow respectively.

Source: Bloomberg, MIDFR

• If the price of crude oil is one of the main proxies of the Malaysian economic fundamentals, the Ringgit should not be trading at the level it is currently at.
• The Ringgit lost -0.65% against the greenback last week. Although it was not the worst performer amongAsian peers (the Singapore dollar lost -0.89% while the  Korean won slipped -0.84%), its performance vis-a-vis the price of crude oil should continue to confound market observers. Meanwhile, non oil-dependent currencies such as the Philippines Peso bucked regional trend and rose against the dollar last week.
• The price of Brent crude, although softer towards Friday, closed the week actually higher at USD63.26pb compared with USD63.02pb the week before. The price of oil has stabilized within the USD60-70pb range, after rebounding from a six-year low. Its recovery has been halted by signs of a global glut, as reflected by the elevated level of U.S. inventory, and the fact that OPEC has been pumping more than its quota of 30mbpd.
• Yet, while the Ringgit had closely tracked the price of crude oil before, the correlation has plummeted and the gap widened last week (see chart).
• It is our conviction that the local equity market will not make much progress until the Ringgit has stabilized, and order is unlikely to be restored until the Ringgit is better behaved against the price of crude oil.
Meanwhile, the widening Ringgit-oil disjunct last week is ominous for equity prices in general.
• With two trading days left in June, hope for a last-minute market salvation is dimming. As of last
Friday, the KLCI and FBM70 had lost -2.1% and -3.0%respectively for the month. June 2015 is set to be the worst month of June in seven years (see chart).

bursa malaysia worst june performance JULY REDEMPTION?
• We cross over to 2H15 this Wednesday with the hanging spectre of double jeopardy in the form of Grexit and China crash. That is on top of the Ringgit quagmire that is unlikely to clear so soon.
• With no June salvation, July redemption would also be a tough proposition. This is despite July being a generally gainful month (see chart). The KLCI dropped deep into the redzone only once since year 2000. And the decline was only -4.1% during the Dotcom crisis.
• Monday would be interesting to see how markets react especially to China’s surprising monetary stimulus announced on Saturday. There may be an initial euphoria but we do not believe that it will reverse the downtrend.

by MDF Research