Inflow of funds to the KLSE would also depend on government policies.
KUALA LUMPUR: Bursa Malaysia has the potential to receive more foreign funds, said Citibank Malaysia's Head of Investment Strategist and Research (Wealth Management Products) Steven Yong Thursday.
He said foreign participation in Bursa Malaysia had increased to about 28 per cent now from 23 per cent at the end of third quarter 2011 but still below the usual peak of between 33 and 35 per cent.
He said the inflow of funds would depend on what policy the government was implementing.
"They are in for longer term prospects. If the foreigners are confident in the government's policies, they will come in," he told a media conference on the 2012 retail investment outlook here.
Another important factor would be the outcome of the general election which was expected to take place in the first half of 2012.
Yong said the FBM KLCI could hover close to 1,600 points by year end. The stock market benchmark index ended today's morning session at 1,522.32 points.
"There is still a lot of uncertainty until we get to the middle of the year. What (policies) will be implemented this year will affect the market," he said.
He said the FBM KLCI beat his 2011 year-end forecast of 1,450-point level to stay above 1,500 points due to foreign buying.
For this year, his preferred sectors include oil and gas and utility. Yong also expects the ringgit to appreciate against the US dollar based on fundamental perspectives.
"Fundamentally, due to the expected growth of our economy which is five per cent compared to two per cent for the United States, the ringgit will appreciate," he said.
In the shorter term, however, the weakness of the euro would benefit the US dollar and would have an impact on the performance of the local currency.
In the next three months, Yong expects the ringgit to be in the range of 3.2 to 3.23 per US dollar and strengthen to 3.1-3.12 in the next six months.