King’s decision not to declare emergency averted likely sell-off on Bursa

“The King’s advice for MPs to not continue with any irresponsible action that could undermine the stability of the current administration could quiet political noise in the near term," CGS-CIMB Research said.

KUALA LUMPUR: The King, Sultan Abdullah Sultan Ahmad Shah’s decision not to declare an emergency is a major relief to the market as such a declaration would shake the confidence of consumers, businesses and investors in the country.

CGS-CIMB Equities Research, had in its strategy report issued on Monday, stated that a declaration of an emergency would lead to lower growth prospects for the country and corporates.

“The King’s advice for MPs to not continue with any irresponsible action that could undermine the stability of the current administration could quiet political noise in the near term.

“His reminder of the importance of the 2021 Budget, set to be tabled in Parliament (on Nov 6), reduces the chances of the Budget being voted down due to insufficient support.

“Overall, this is a more favourable outcome for the Malaysian equity market than an emergency decree but it may not be sufficient to reverse foreign investors’ net selling due to prevailing political uncertainty, ” CGS-CIMB Research said.

Foreign funds were net sellers again on Bursa Malaysia in the week ended Oct 23 at RM214.4mil but this was at a smaller pace from the previous week, MIDF Research says.

In its research note on Monday, it said foreign investors were net sellers at RM479.5mil for October so far.

“So far in 2020, foreign investors net selling has reached -RM22.81b worth of equities on Bursa, ” it said.

Meanwhile, Maybank Investment Bank Research pointed out while Asean’s diversity of governance styles and issues is recognised, Bursa’s historical relative political stability premium is eroding, and without mitigating offsets (e.g. large, growth-attractive domestic market and/or expanding “new economy” investment options), foreign equity flows will remain pressured (fixed income should be more stable).

With domestic investors set to retreat to the sidelines, the KLCI will struggle for support, especially as the most sizeable foreign holdings are in index heavyweights like finance and gloves.

The research house said while it maintained its 1,505 end-2020 KLCI target (15 times 12M forward price-to-earnings ratio (PER), or -0.5 standard deviation (SD) vs. long term mean) for now, potential for undershooting has risen, with a -1SD level (14 times), implying KLCI at around 1,410.

“A sell-off may provide attractive entry points for exporters/growth stocks, with value picks demonstrating cashflow visibility/ strong balance sheets attractive on a 12-mth basis.

“We are overweight mid-cap financials, utilities, NFOs, healthcare/gloves, construction, large-cap oil & gas+ selective value plays in tech, autos, REITs, property and plantations, ” Maybank Research.

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