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Foreign funds bought more Malaysian equities in November and are expected to continue their buying spree this month.

Last month, foreign funds bought RM11.5 billion worth of shares, up from RM10.5 billion in October, data complied by the stock exchange show.

“I expect this trend to continue with more money from abroad coming through,” said Edmund Tham, head of research at Mercury Securities.

December traditionally has been a good month for equities.

OSK Investment, in a report, said since 1996, 86 per cent of the time, the month had posted positive returns.

Tham said money has been flowing into Malaysia as well as other countries in Southeast Asia because of the weak US dollar and European debt problems.

Foreign investors were net buyers of local stocks, helping the index to an intra-day record of 1531.99 points on November 10.

They accounted for 28.38 per cent of the total value of trade in November worth RM39 billion, with local institutional funds accounting for 30.16 per cent of the value traded.

International investors’ purchases are at their highest in more than one-and-a-half decade, as low returns from abroad and Malaysia’s own economic liberalisation help attract investments into equities.

The appreciating ringgit, ease of credit and inflow of capital helped push Malaysia as the fastest growing market for mergers and acquisitions in the Asia-Pacific region this year with some RM21.3 billion deals on the table.

Lee Cheng Hooi, Maybank Investment Bank’s head of retail research for equity markets, said that Malaysia was experiencing a bit of a bull run, but its correlations with the Dow Jones are getting tighter.

“They are mirroring the Dow Jones. Going forward, I expect buying to be selective,” he said.

Lee added that retail participation is likely to be stable as currently big funds are dominating the market.

In November, retail buying was strong, with retailers buying RM8.9 billion worth of stocks, as opposed to RM7.6 billion worth of stocks in the month before.

Tham also expects retail participation this month to be stable as Malaysian retail players have been diversifying their investment portfolios.

“It’s just not all about buying stocks here. Some of them are investing on equities in Hong Kong and Singapore, into unit trusts as well as buying properties for speculative purposes,” said Tham.

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According to a local daily, Malaysia’s stock market drew more buyers than sellers among foreign investors in October while small or retail investors made up almost half of the trading volume, data from Bursa Malaysia showed.

Jupiter Securities head of research Pong Teng Siew expects the trend to continue this month, as local institutions like the Employees Provident Fund need to sell to raise income for dividends.

“They need to sell to pay dividends. But, because the market is strong the local institutions will also be buying stocks,” Pong told Business Times in a telephone interview.

It is also clear that foreign funds are buying although they have yet to do so in large quantities.

“The momentum is in the larger capitalised stock, and the buying has been steady,” said Pong.

Last month, foreign funds bought RM10.6 billion worth of stocks and sold some RM8.8 billion of them.

In contrast, domestic funds bought RM12.8 billion worth of stocks and sold some RM14.2 billion worth of stocks.

Meanwhile, Lee Cheng Hooi, Maybank Investment Bank’s head of retail research for equity markets, said that retailers were also strongly back in the market.

Lee added that opportunities are abundant in the market, and retailers should focus on laggards and lower-priced stocks.

Last month, retail players bought RM7.6 billion worth of stocks and sold RM7.7 billion worth of stocks.

Retailers accounted for 48.04 per cent of the 25.2 billion shares traded in October.

Yet another indicator of retailers coming back to the market is the rise in volume on Bursa Malaysia’s FBM Small cap index, which measures the performance of stocks with smaller market values.

This has led to a surge in demand for stocks below RM1. Over the past three months, from the 17 stocks that have gained more than 100 per cent, 13 of them are priced below RM1.

Among the penny stocks that have notched gains of 200 per cent or more are Scope Industries Bhd, Karambunai Bhd, Petaling Tin Bhd, Majuperak Holdings Bhd, Ho Wah Genting Bhd and Cuscapi Bhd.

Apart from sentiment, cheap credit has also helped stir the layman’s interest in equities.

According to Bank Negara Malaysia, up to September this year, some RM35.6 billion, which is an increase of 8.1 per cent over the same period a year ago, was lent by banks for purchase of securities.

Pong says the bulk of the money went to large corporations to fund takeovers, and retailers are getting their purchasing power from loans provided by stockbroking firms.

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Yes, according to HwangDBS Investment Management’s chief investment officer.

Malaysia’s equities market is on the verge of a bull-run similar to the one seen in the early 1990s and the indications are that it is sustainable, the chief investment officer of HwangDBS Investment Management said.

“Conditions for 2011 are ripe and any pull-back now is an opportunity for investors,” said David Ng, who manages about RM8.9 billion for the fund house.

Malaysia, he said, is “unexpectedly exciting” so long as the government can execute the projects announced in its US$444 billion economic transformation programme last month.

However, Ng cautioned that it would not be a repeat of 2009-2010 where over 90 per cent of stocks rose following the crisis.

“2011 will be about stock-picking,” he said.

The benchmark FBM KLCI has risen by almost 20 percent since the start of the year, setting a 34-month record on yesterday.

The FBM KLCI has risen more than its Singaporean counterpart

, but has not matched the meteoric rises in Indonesia, Thailand and the Philippines, which have surged over 40 per cent each.

Analysts say part of the reason for the KLCI’s climb is the pre-election enthusiasm, but Ng said there were fundamentals supporting the rise. Malaysia is expected to hold general elections next year although they aren’t due until 2013.

Present conditions were similar to those in the 1992-1994 bull run, Ng said, and the low interest rate environment in developed economies could further fuel the growth spurt here.

Analysts expect further massive inflows of capital into Asia, driven by the second round of U.S. quantitative easing and warn that this may spark inflationary pressures and asset bubbles.

“Areas where we are positioned are the oil and gas sector and banking in Malaysia,” Ng said. “Regionally, we like technology and tourism in Singapore.”

The performance of these sectors will continue to be fueled by demand from big emerging economies such as China, India and Indonesia, and are insulated from a slowdown in developed markets, Ng said.

He said he preferred high-yielding dividend stocks as those companies tended to have better fundamentals.

The inflow of funds has been well-documented by international observers, and has led the World Bank to issue a warning over the possibility of asset bubbles. Ng said bubbles posed a real risk but there have yet to form.

HwangDBS Investment Management has averaged a 15 per cent return per annum on its assets under management since 2000, Ng said.

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