KUALA LUMPUR: The political crisis in the Pakatan Harapan coalition government has seen UOB Kay Hian Malaysia Research lowering its FBM KLCI trough valuation to 1,480 based on 15 times 2020F price-to-earnings PE (-one standar deviation) to mean.
In its strategy report on Monday, it said it would be reviewing its current end-20 FBM KLCI target of 1,650, which pegs the market at 16.8 times 2020F PE (mean PE+0.5SD), to adequately incorporate the impact of Covid-19 on market earnings and assess the country’s political and policy landscape.
“Potential beneficiaries in the formation of a backdoor ruling coalition include selected construction companies particularly Gabungan AQRS and CMS, and building material companies (notably cement company Hume), and MyEG. Exporters should also generally benefit as the ringgit would remain weak.
“However, potential losers could be selected sin stocks, in particular NFO and brewery (presumably the inclusion of PAS into the coalition) stocks, and Gamuda (PTMP)
“Highly defensive stance as equities are expected to underperform in the near term. Nevertheless, note that in theory our current top picks are mostly export-oriented and largely unaffected by potential changes to domestic policies: IOI Corporation, MISC, Sunway Bhd, Westports and Yinson Holdings, and small/mid caps Duopharma Biotech, IJM Plantations, Hume, Scientex, and VS Industry, ” UOB Kay Hian Research said.
The Star reports that political anxiety continues to grip the nation as Pakatan Harapan (PH) is on the brink of collapse.
Events over the past 24 hours, and more importantly what will unfold today, is likely to spell doom for the 21-month-old ruling coalition.
Parti Pribumi Bersatu Malaysia, Umno, PAS and Sabah and Sarawak’s leaders gathered at Istana Negara yesterday, fuelling speculation that the Pakatan government has collapsed.
UOB Kay Hian Research said Prime Minister Tun Dr Mahathir Mohamad has garnered sufficient parliamentary support to create a new ruling coalition named Perikatan Nasional, which include Primubi Bersatu (Bersatu), Warisan UMNO, PAS, and several members of parliament from PKR, DAP, Amanah, Gabungan Parti Sarawak (GPS).
The research house said this event signifies the fluidity of Malaysia’s long term socio-economic, political and policy landscape, now acknowledge that there could be further significant outflow of foreign equity investments which is estimated to own 15%-16% of Malaysian equities (the overall foreign ownership in Malaysian equities is about 22% inclusive of strategic shareholdings).
Foreign investors have sold out about RM10bil of equities in 2018 and 2019, and have sold out another RM395mil year-to-date.
“Nevertheless, the market may quickly snap back if the new ruling coalition swiftly implements sensible business policies, noting that there can be a few quick fixes to improve sentiment.
“However, it remains to be seen whether the backdoor coalition (if it comes to power) would still adopt some of PH’s policies, eg anti-monopoly and open tenders for government contracts.
“Scenario of a new ruling coalition should be uplifting for a handful of stocks, by unlocking some of PH government’s policy implementation constipation, such as expediting the implementation of already approved mega construction projects, and thawing the hiring of foreign workers, ” it said.
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