RHB Research said this unprecedented election result has caught most investors off guard, although retail investors appear to have read the tea leaves well.
KUALA LUMPUR: RHB Research Institute sees that after the political tsunami in the 14th General Election, there could be some volatility in the stock markets, a sell-off in the ringgit assets but it believes in the electorate's new political maturity.
RHB Research said that after 61 years of successive Barisan Nasional (BN)/Alliance governments, Malaysia and its capital market enter uncharted territory following the unexpected success at GE14 by the Pakatan Harapan (PH) coalition.
“With capital markets having priced in a clear BN victory, we expect a knee-jerk selloff when markets reopen, as the country risk premium spikes higher.
“We believe investors and foreign portfolio funds in particular, will choose to exit first, as there will likely be selling pressure on the ringgit,” it said.
“Still, beyond the immediate term, the new political maturity by the electorate may be the catalyst to enable Malaysia to reach escape velocity, and break out from the inexorable gravitational pull of the middle-income trap,” it said.
RHB Research said as global and domestic macro fundamentals remain sound, it would look for bottom-fishing opportunities to accumulate quality, non-politically aligned stocks at lower levels.
It also pointed out that international rating agencies may need to be convinced that the incoming PH government has a viable and coherent economic strategy.
It was cautious about the construction sector as it could be vulnerable, if the viability of large projects is reassessed. However, export-oriented sectors like technology, timber, rubber products and furniture makers could benefit from a weaker ringgit.
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