PETALING JAYA: The recovery of Malaysia from the economy-damaging Covid-19 pandemic has pushed the stock market firmly on an upward trajectory and now talk of a snap general election may be yet another market fillip.
Macquarie Equities Research (MQ Research) foresees Malaysians heading to the polls between late-August and early-November. A Perikatan Nasional (PN) win, it said, was positive for business and post-election stimulus is likely.
“We expect Malaysians to go to the polls in the fourth quarter of 2020 to once and for all settle the political uncertainty. What has changed is that the timeline for the election appears to be moving forward, with a likely timeline now being late-August to early-November, ” it said in a report yesterday.
Political uncertainty has been a harbinger of a market malaise that began from the time Pakatan Harapan (PH) grasped power back in 2018. But the change in political leadership earlier this year, together with a massive stimulus package to help the country ride through the Covid-19 pandemic, has been a liquidity hoist that has propelled the market higher.
The question is how will an election sway the market? Driven by liquidity in the market and strong retail interest, the FBM KLCI has gained close to 30% from its year-to-date low of 1,219 points to close yesterday at 1,576.90 points.
Snap elections and any possibility of a regime change in the current context will likely introduce additional uncertainties to the capital market, in terms of government policies and directions, said Fortress Capital Asset Management CEO Thomas Yong.
“More so considering the relatively well-managed health control and financial response that were introduced by the current incumbent (PN) government in the wake of managing the unprecedented Covid-19 outbreak situation, ” Yong told StarBiz.
Malaysia’s 15th general election or GE15 is due only in 2023 but there is expectation it will be held this year, as Prime Minister Tan Sri Muhyiddin Yassin seeks to secure his personal mandate and dispel views that his coalition came to power through the “backdoor”. In recent weeks, there has been growing noise on the ground about PH trying to return to the government. However, the pendulum seems to be swinging toward a PN win.
“PN’s track record has been encouraging and well-received so far. Its quick response to institute the movement control order (MCO) to curb the spread of Covid-19, and the almost immediate rollout of reliefs and subsequent management of the pandemic has generally been perceived to be fairly well-executed, ” added Yong.
That said, he contends that the political momentum could remain volatile and fragile. Any perceived wrongdoing or mismanagement could affect this momentum, said Yong, who does not think elections in the current context would provide the kind of market catalyst we used to see before.
Singaporeans will be going to the polls on July 10, ahead of its government’s term, which would have ended in April next year.
Back home, MQ Research said “increasingly the pendulum seems to be swinging toward a PN win, which the business community seems to be happy about, as it is seen to be pro-business.”
It said an early election was “positive for the market in general, with pump-priming likely to come after rather than before an election, given the time constraints. This, it said, would set the stage for a positive end to 2020.
The brokerage sees construction, banks and IT services as likely beneficiaries.
“With a number of large-scale projects on hold, we would expect an early election to pave the way for more announcements around these. The construction sector would be the first port of call for exposure here, with the long-awaited Mass Rapid Transit Line 3, the KL-Singapore High Speed Rail and Johor Baru-Singapore Rapid Transit System Link as key projects we would expect post-election. We would also expect resumption of key telco infrastructure projects, such as the National Fiberisation and Connectivity Plan and 5G, to kick off post-election.”
Foreign direct investment is an added beneficiary, according to MQ Research. It said trade tensions, and to some extent the Covid-19 pandemic, have led to increased demand from global manufacturers to diversify their production bases with Malaysia stacking up well within Asean from an ease (and cost) of doing business perspective, availability of skilled labour and good infrastructure.
In terms of stock picks, MQ Research believes small-caps such as Econpile Holdings Bhd and Gabungan AQRS Bhd, as well as Gamuda Bhd are best placed for infrastructure-related news flows post-election. Telekom Malaysia Bhd and TIME Dotcom Bhd and smaller-cap IT service providers stand to benefit from increased digitalisation and network initiatives.
Where banks are concerned, CIMB Group Holdings Bhd and RHB Bank Bhd would be beneficiaries of a broader pick-up in corporate spending into 2021, notwithstanding near-term credit cost concerns, which the brokerage believes have been largely reflected in their suppressed valuations.
A former banker said that with global equity markets rallying, an early election would provide additional impetus to stock prices strengthening, which could see “rotational play on politically-linked stocks that have been on the back burner of late, reducing the focus on rubber glove manufacturers.”