KUALA LUMPUR: An unexpected but positive outlook review from debt rating agency, Fitch Ratings, drove the FBM KLCI upwards yesterday, taking away one of the two fear factors that have reduced foreign interest in Malaysian equities to minimal levels, said Citi Research.
Bursa Malaysia ended higher yesterday as the FTSE Bursa Malaysia KLCI finished at 1,733.88, up by 5.92 points, after moving between 1,728.43 and 1,738.67 throughout the day.
Fitch revised its outlook on Malaysia to stable from negative and reaffirmed the country’s long-term foreign and local sovereign credit rating at A- and A.
In a research note, Citi Research said finding a proper financing resolution for sovereign entity 1Malaysia Development Bhd’s (1MDB) debt portfolio remained the key challenge if foreign investors were to look again at Malaysian equities.
It attributed the KLCI’s weakness thus far to weak earnings, poor consumer sentiment and impact of debt deleveraging.
“A weak ringgit helps exporters but transmission of benefits to the wider economy takes time.
“Stronger exports, greater foreign direct investments (FDIs) trends and visible project announcements were the key catalysts for foreign investors to re-engage,” it said.
Stronger-than-expected tax collection that included GST and income tax would also help investors’ perception on the government’s ability to execute.
Despite a weak earnings trend, Citi Research noted that foreign investors were investing in Malaysia lately and this suggested that investors were slowly but surely coming back to the country.
Fitch Ratings’ upgraded sovereign rating outlook to “stable” will likely increase the foreign holdings of Malaysian Government Securities (MGS), said Standard Chartered.
In a separate note, the bank said foreign ownership of MGS was around 47 per cent (US$43 billion) of total outstanding (US$92 billion), of which 25 per cent were foreign central banks, sovereign wealth funds and other types of investors.
Furthermore, the majority of foreign holdings were global emerging markets-dedicated bond funds and recent data showed that foreign sentiment had improved.
Foreign holdings remained stable and emerging markets bond funds continued to reduce their underweight positions, it said. — Bernama