GENERALLY, brokerages are predicting that Bursa Malaysia will go on a correction mode due to the change in government when it opens today.
The investment community does not like uncertainties. Pakatan Harapan’s surprise election victory on May 9, defeating the 61-year-old rule of Barisan Nasional has pushed Malaysia into uncharted territory.
Analysts have cautioned about a knee-jerk reaction.
Fortunately the the impact should be mitigated – thanks to the four-day long break.
The indicators so far points to a bumpy ride for Bursa.
In less than 24 hours after the release of the election results, the five-year credit default swap price, an indicator of cost to insure a Malaysia default, surged to an 11-month high in the United States. The iShares MSCI Malaysia ETF, the biggest exchange-traded fund holding Malaysian stocks, fell by 6% – the lowest since December.
In addition, the ringgit non-deliverable forward (NDF) has also weakened post-GE14, signaling investors’ concerns. For the uninitiated, the NDF market is settled in US dollars but traded offshore.
However, despite the latest developments, investors have more reasons to stay positive and avoid potential panic when the market reopens for trading.
There are several reasons why the pain will only be short-term:
> The unprecedented transition of power from Barisan to Pakatan has been fast and peaceful so far. The previous Prime Minister Datuk Seri Najib Tun Razak was graceful in accepting the electorate’s verdict and willingly relinquished his position.
Meanwhile, the police and the armed forces have also expressed their support to facilitate a peaceful transition of power, putting the new administration on the uninterrupted path of governance.
> The new government is headed by experienced former Prime Minister Tun Dr Mahathir Mohamad. He has a track record of navigating the country through an economic storm.
Dr Mahathir has also stated that Pakatan would extend pro-business policies and would focus on boosting the domestic stock exchange. This is a strong signal that the new government is committed to continue or even exceed the momentum set by its predecessor.
> The new government’s strong control in the state level, will help to ease and strengthen federal-state relations. This will streamline governance and support a business environment across Malaysia. Currently, apart from its control in the federal level, Pakatan also controls eight out of 13 states, which include the economically-dominant states such as Selangor, Penang, Johor and Perak.
> While there will be changes in several macro policies under Pakatan, the overall economic direction will be intact and long-term driven. Some economists have indicated that the fiscal deficit might increase. However the increase, if any, would be minimal and manageable. As stated in Pakatan’s 2018 alternative budget, the coalition is confident of covering the revenue shortfall due to its election promises. Pakatan promises a fiscal deficit of 2.04% in 2018 as compared to 2.8% projected by its predecessor.
> The formation of a team of eminent persons to help the new administration achieve its 10 major promises within the first 100 days is a big dose of confidence for the new government.
The five member team comprises former Finance Minister Tun Daim Zainuddin, former Bank Negara governor Tan Sri Zeti Akhtar Aziz, tycoon Robert Kuok, prominent economist Jomo Kwame Sundaram and former Petronas president and chief executive officer Tan Sri Mohd Hassan Marican.
The combination of Kuok and Daim – old hands in the corporate world – should not be underestimated. They are pro-business and know how the corporates think.
> The change in government, while new at the federal level, has happened before in several states. This includes the economically-dominant states of Selangor and Penang. The tried-and-tested experiment of changing the “government-of-the-day” in those states have yielded positive results and this would be replicated at the federal level, moving forward.
Many of the key concerns revolving around the new government have dissipated faster than expected. The smooth transition is by far the most important fact.
While some concerns continue to linger, investors should react rationally when the bourse reopens. In crisis, there are opportunities.
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