KUALA LUMPUR: Foreign investors' underweight position on Malaysia, one of the largest observed in the past decade, is bottoming out.
This is after four consecutive months of foreign fund inflow, an uptick in foreign shareholding to 19.6 per cent in January and year-to-date foreign net inflows of RM2.14 billion.
SPI Asset Management managing director Stephen Innes said despite the weaker ringgit, investor interest in Malaysia remained strong.
He highlighted a long-term strategy of investing in countries with weak currencies, especially during times of market overshoot.
"We do not see a compelling reason why the ringgit should be trading at crisis levels. Since the local note is not freely traded in open markets, the primary method to gain exposure to the currency is by buying local assets," he told the Business Times.
Innes said foreign investors might be less concerned about currency risk during the tech boom period, where Malaysia stood to benefit from the shift in tech supply chains away from China.
The rationale behind this strategy is that when the currency appreciates, it enhances the total return because investors own assets backed by an appreciating currency.
"Therefore, investing in Malaysia during periods of currency weakness could lead to higher returns in the long run," he said.
Meanwhile, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said there was a possibility for reratings of Malaysian stocks by foreign investors.
Afzanizam said the price earning multiples were at 16 times, which was still low by its historical average of 17 times.
"The ringgit is undervalued, which is also another reason for foreign investors to consider Malaysia as their investment destination.
"What needs to be done is to execute the development agenda, as prescribed in the National Energy Transition Roadmap, the 12th Malaysia Plan Mid-Term Review and 2014 Budget," he said.
"Over time, the foreign funds would place a certain premium on the market," Afzanizam said.
In addition, Hong Leong Investment Bank Bhd (HLIB Research) believed foreigners' underweight position on Malaysia had bottomed amid recent persistent net inflows by foreign investors.
The research house said this has been seen with an uptick in foreign shareholding to 19.6 per cent in January (vs an all time low of 19.5 per cent in December 2023) and year-to-date foreign net inflows amounted to RM2.14 billion from an outflow of RM2.6 billion last year.
"Moreover, risk appetite for emerging markets should resurface with the United States Federal Reserve's eventual pivot; stronger Malaysian gross domestic product growth, a more stable local political climate; and expectations of more aggressive measures from China to revive its slowing economy.
"Hence, we believe the sustained strong buying interests from foreigners would cushion downside risk that were triggered by a healthy profit-taking consolidation after the recent rally," it added.