PETALING JAYA: Nervy investors will be paying close attention to stocks on Bursa Malaysia and the ringgit in the aftermath of Pakatan Harapan’s stunning victory at the 14th General Election (GE14).
The financial markets have been closed since polling day on May 9 and the two additional public holidays post-GE14 granted by the new government were seen as timely.
Market analysts have generally voiced concerns of a knee-jerk reaction to the Pakatan victory but Prime Minister Tun Dr Mahathir Mohamad has used the intervening days after GE14 to inject some confidence into the markets, saying that the economy is his focus and that market capitalisation on Bursa is expected to rise.
Year-to-date, the FBM KLCI has done well gaining 3% and since the dissolution of the Dewan Rakyat, it has gained 1%, suggesting that the market is not pricing in any surprise GE14 results.
Foreign shareholding for KLCI was 24.1% as at end-April.
According to analysts, there is a large number of stocks that may see a sell-down, especially those relying heavily on the previous government.
“The repercussions will not only be for companies and sectors, but also on sentiment and confidence,” said CIMB Research in its report.
The research unit expected foreign investors to be negatively surprised by GE14 results and might take money off the table in the immediate term due to short-term uncertainties.
However, CIMB Research said any major sell-off in the market is seen as a “buying opportunity” for well-managed companies with good dividend yields.
CIMB is not the only broker to voice concerns over near-term sentiment for the market.
AllianceDBS Research believed that any market sell-down may be brief and offer accumulation opportunities.
Over the medium term, structural reforms will be a catalyst to watch out for.
RHB Research, in its strategy report, expected a knee-jerk sell-off when markets reopen, as the country risk premium spikes higher.
“We believe investors and foreign portfolio funds will choose to exit first, as there will likely be selling pressure on the ringgit.”
RHB added that international rating agencies might need to be convinced that the government has a viable and coherent economic strategy.
“We also advise investors to accumulate consumer stocks, selective small cap stocks exposed to the consumer sector, well-managed companies with defensive earnings qualities like utilities and telcos, as well as export-oriented industries,” added CIMB Research in its latest strategy report.
It pointed out that most of the final policies by the new government would likely be moderate and took into consideration feedback from the corporate sector. “This should gradually entice the return of risk appetites.”
Pakatan’s first 100-day manifesto has drawn some concerns to government finances and the fiscal deficit. It promised to cull the goods and services tax (GST), an important and sizeable sum towards government revenue and replace it with a sales and services tax.
The revenue shortfall from doing that has some worried over the impact on the fiscal deficit but former Finance Minister Tun Daim Zainuddin, allayed fears that government finances would deteriorate.
“There is no reason to put the economy into a state that is much worse (than before),” he told Bernama after chairing a meeting late Saturday with other members of the Team of Eminent Persons. “We are not going to increase the debt anymore. We are not stupid. There is a lot of speculation, unnecessary fear. This is a normal reaction when a new Government takes over,” he said.
“For 57 years there was no GST and there was no problem.”
While the Government is working on improving confidence, there is worry that a broad range of stocks will get hit, particularly construction stocks and politically-linked counters.
Dr Mahathir has said that he preferred improving the current rail to Singapore instead of building the High Speed Rail. Futhermore, the East Coast Rail Link would be reviewed. “However, this negative may be partially offset by the Pakatan manifesto to improve institutional and political reforms, which will be viewed positively by the market in the long-term,” CIMB Research added.
Based on Pakatan’s manifesto, CIMB Research see very limited impact on FBM KLCI earnings based purely on the top 30 stocks except in the form of potentially slower loan growth in the near-term for banks due to short-term uncertainties.
The ringgit was last traded at 3.9497 per US dollar on Tuesday. The US dollar index, which measures the currency performance against a basket of peers has been trading at its highest level so far.