In view of the wafer-thin majority of Perikatan Nasional (PN) in parliament and the likely shaky position in the government, talk of an early election continues to swirl. What would the risks be for the local market if a quick survey were carried out?
Last week the PN coalition won its first victory in parliament when it successfully ousted Dewan Rakyat’s spokesman Tan Sri Mohamad Ariff Md Yusof. This is seen as a vote of confidence in Prime Minister Tan Sri Muhyiddin Yassin.
However, the motion was only accepted with two votes.
Some analysts consider it an opportune time for PN to apply for a new five-year mandate from the people as Malaysia’s fight against the Covid-19 pandemic is viewed as well-conducted by many, including foreigners. In addition, the coalition’s stimulus packages were welcomed by most citizens.
In a recently published Research Note, Macquarie predicts that there will be general elections from late August to early November, which are expected to be a catalyst for the market in the medium term.
Increasingly, the pendulum seems to be swinging in the direction of a PN profit, which will please the business world as the coalition is seen as business-friendly, says the research house. “With a more stable political situation, which is likely to be a good sign for economic activity, we would view an early election as positive for the market in general, with preparation for the pump happening after an election rather than before an election given time constraints. create the conditions for a positive end by 2020. “
In fact, the political parties say they are well prepared for the 15th general election (GE15). PAS Terengganu has urged its members to prepare for polls, which are expected to take place in November.
Looking at the trend in the past, the FBM KLCI rose between 1.5% and 16.7% three months before the survey in GE11, GE13 and GE14. However, the benchmark index fell 2.8% to 9% in GE10 and GE12 – in the latter case, this was partly due to the global financial crisis.
It rose by 1.1% to 2.9% between the dissolution of parliament and the elections in GE10 and GE11, but fell by 8.9% in GE12. In GE13 and GE14 the decrease was 0.2%.
Three months after the survey, the key index rose the most in GE10 at 33.7%, followed by 6.4% in GE12 and 1.9% in GE13. It decreased by 9.2% and 2.5% in GE11 and GE14, respectively.
Eden Inc Bhd and Thriven Global Bhd have hit the radar as both are linked to Datuk Fakhri Yassin Mahiaddin, Muhyiddin’s son.
Real estate developer Thriven’s share price is up 27% year-to-date, while Eden, which operates in the food & beverage and tourism sectors, is up 3%.
The e-government service providers MyEG Services Bhd and Datasonic Group Bhd should also be in the spotlight. MyEG recently completed a three-year extension valued at RM 208 million to allow foreign workers to renew their temporary work cards online. She also announced that she will continue to offer e-government services to the road traffic department until further notice, as the extension calls have not yet been concluded.
How would the market react to GE15?
One analyst who refused to be named believes early voting is the best way for the new government to prove it has a larger majority to rule.
Still, he points out that the political scene will be more broken than before and that a quick poll does not guarantee the formation of a stable government.
In fact, if a general election is called, he expects the market to correct. “Valuation is currently stretched and earnings are in decline before a rebound is expected next year. In terms of market sentiment, foreigners have sold quite a lot since the start of the year. “
Amid political uncertainty, investors will continue to hold on to defensive measures, including stocks in healthcare and utilities.
However, he warns that it will be “difficult” for the construction sector as projects may not be carried out effectively if there is a change of government. “So I think the building stock will fall with every election. The same applies to stocks of sin such as games and breweries. “
Macquarie sees it differently. It should be noted that with the long awaited connection of the Mass Rapid Transit Line 3 (MRT3), the Kuala Lumpur-Singapore high-speed line (HSR) and the Johor Rapid Transit System (RTS), the construction sector will be the first port of call for exposure as key projects .
“We would also expect the resumption of key telecommunications infrastructure projects, such as the National Fiberization and Connectivity Plan (NFCP) and 5G, to begin after the elections.”
The research firm believes its small-cap top picks Econpile Holdings Bhd, Gabungan AQRS Bhd and Gamuda Bhd are best for infrastructure-related news flow after the elections.
“Telekom Malaysia Bhd, Time dotCom Bhd and IT service providers with lower market capitalization will benefit from increased digitization and network initiatives.
“CIMB Group Holdings Bhd and RHB Bank Bhd would benefit from a broader recovery in corporate spending through 2021, despite short-term borrowing cost concerns that we believe are largely reflected in suppressed valuations,” said Macquarie.
Lee Heng Guie, executive director of the Socio-economic Research Center, says that given the rate cuts by global central banks, the introduction of quantitative easing, and bond purchases, liquidity support initiatives can be expected to continue as the economy recovers.
“We are already seeing a V-shaped recovery on the stock market. The technology and health sector has grown significantly. Some were backed by corporate earnings, but the broader market was driven by liquidity.
“With the market moving six months ahead of us, a V-shaped rebound in the stock market does not guarantee that we will see a V-shaped rebound in the economy. There was a significant divide between the financial market and the economy. “
Lee emphasizes that changing the policy is the primary concern of investors. “Continuity is always what investors are looking for. You need stable government to run the policy. If the government is unstable and subject to disruption, you cannot focus on your resources doing what is badly needed to restart Malaysia. In the new normal, things are becoming more and more complex and challenging. “
For Danny Wong, CEO of Areca Capital Sdn Bhd, the likelihood of an early election is low, as PN only achieved a simple majority in parliament. “If you’re already in government, why would you take the risk and ask for an election? I don’t think there is much of an impact. “
Currently, Wong prefers technology, utilities, and healthcare stocks.
Victor Wan, head of research at Inter-Pacific Securities, believes that overseas funds will continue to be marginalized due to Malaysia’s political uncertainty. “You need more catalysts for the return of foreign funds. The world is flooded with liquidity … definitely there could be [foreign funds] They will drive the market up, but they can just exit without hesitation. Again, it depends on where the tide flows. “
According to MIDF Research, foreign investors have sold 16.9 billion RM minus shares to Bursa Malaysia since the beginning of the year.
Macquarie says with political certainty that Malaysia stands ready to be an easier target for FDI.
Impact of the US presidential election result
In the US, the presidential elections are due to take place on November 3rd. According to Lee, the election result is one of the factors that could trigger a reversal in riskier asset prices.
Other factors include a protracted and deeper recession, less optimism about continued liquidity support from central banks, a reassessment of investor appetite and risk pricing, renewed US-China trade tensions, and geopolitical tensions.
An analyst notes that if the Democratic Party’s Joe Biden wins the election, it will be positive for Asian markets. “Because of the historical trend, the Democratic Party is not pro-business and it would be bad for companies and the US market if it wins. You have already said that you want to withdraw the tax cuts … This will flow funds into the regional markets. I see it as a catalyst for the local market. “
If Donald Trump wins from the Republican Party, it would not be a good sign for the global economy, especially the ongoing trade tensions between the US and China, he says.
Lee agrees, saying that if Trump is re-elected, he will continue the “America First” policy.
Wan adds that sentiment will determine market direction closer to the election. “Nevertheless, the world market is already way up and can make up for all the losses of recent months. The reviews are still bad and it all depends on the mood. “
He believes the global stock market is unlikely to continue rising unless there is a fundamental change in recovery history, namely the discovery of a vaccine to fight the Covid-19 pandemic.