KUALA LUMPUR: With the dissolution of Parliament having been announced and confirmed by Prime Minister Datuk Seri Ismail Sabri Yaakob, paving the way for the much-anticipated 15th General Election (GE15), all eyes are now on the FBM KLCI.
It is understandable that investors, both foreign and local alike, are uncertain as to how the market would perform this short working week, underlined by the fact that the Prime Minister was granted an audience with the Yang di-Pertuan Agong less than 48 hours after the pro-expansionary Budget 2023 was tabled.
Hence, some analysts see the dissolution announcement yesterday as a way to clear up some lingering political doubts of investors, going forward.
Rakuten Trade Sdn Bhd head of equity sales Vincent Lau expects some knee-jerk reaction from the market in the short term, perhaps this week, but said the dissolution of Parliament yesterday was good to remove uncertainty.
“This (the dissolution) is something that has to arrive sooner or later. Whichever government being voted in at GE15 will obviously have a stronger mandate from the people.
“Besides, as we know from the tabling of the budget last Friday, the domestic numbers are holding up well, with the government expecting a gross domestic product (GDP) growth of 6.5% to 7% for 2022,” Lau told StarBiz. To refresh the memory on a similar close follow-up of a Parliament dissolution after a budget tabling, one would need to go all the way back to 1999, when the Parliament of the-then Prime Minister Tun Dr Mahathir Mohamad was dissolved on Nov 11, 1999, less than two weeks after the 2000 budget was unveiled on Oct 29.
The FBM KLCI experienced a 2.4% drop in the duration between the budget and the dissolution of Parliament then.
In all the other election cycles since, Parliament was dissolved between five and six months after the budget, a duration that could have dampened any political uncertainty investors may have had, resulting in the FBM KLCI registering growths between Budget Day and the day when Parliament was dissolved, even during the 2008 cycle when the sub-prime crisis was at hand.
Analysts are “neutral” to “positive” on the budget and agree that there could be some selling pressure on equities this week. TA Research, in its post-budget research note, said the aggressive monetary tightening policy of the US Federal Reserve and the uncertainties surrounding the dissolution matter have affected market sentiment and bucked the rallying trend that markets usually showed leading up to the budget.
However, it also noted that this could represent an opportunity to look at undervalued stocks in sectors such as banks, construction, oil and gas, plantation, property and transportation.
While political uncertainty will continue at least until the election itself has been completed, TA Research said, “With the government indicating a strong GDP growth of 6.5% to 7% in 2022 and a resilient expansion of 4% to 5% in 2023, Malaysia has one of the best economic growths in this region.
“This resilient outlook and supportive budget measures should contribute to greater buying interest in domestic equities, which are undemanding from a valuation perspective.
“The weak ringgit against the US dollar is an added attraction for foreign investors, whose shareholding has decreased from 23.7% in 2018 to 20.6% in September 2022.”
Meanwhile, UOB Global Economics & Markets Research said Budget 2023 was “pro-growth” amid looming external headwinds and fiscal challenges.
It said should Parliament be dissolved before the budget is approved, then the newly-elected government would need to re-table the budget.
“The new government can re-table the same Supply Bill (budget) for 2023. This was the case in 1999, when then Prime Minister Dr Mahathir sought the dissolution of Parliament shortly after the tabling of Budget 2000 in November 1999,” UOB added.
CGS-CIMB Securities said Budget 2023 was sensible and pragmatic, although it fell short on reforms.
“Overall, we think the government has stayed on the defensive. Understandably, limited fiscal space and the pending election likely caused a muted budget. Nevertheless, we hope the newly-elected government can reconsider the fiscal direction,” the research firm said.
While the FBM KLCI and its Asean peers remain relative outperformers year-to-date, Maybank Investment Bank (Maybank IB) Research said macro challenges from geopolitical tensions, surging inflation, rising interest rates and growing recession risks mean an increasingly negative earnings revision outlook for 2023.
“Continuing global asset price volatility, coupled with domestic factors such as a weakening earnings outlook and political uncertainties relating to the outcome of GE15, has seen the FBM KLCI struggle into the second half of 2022 (2H22).
“As evidenced in mixed 1H22 reporting, operating margin pressures have been rising across a broad range of sectors, underpinned by increasing labour and raw material input costs, while a damaging combination of rising inflation and interest rates are eroding disposable incomes, and hence demand into 2H22,” Maybank IB Research said.
The research firm noted that notwithstanding Bursa Malaysia’s fairly resilient year-to-date performance, the average 20% price-to-earnings premium the market used to command over its regional peers was no longer obvious.
It said the gradual structural de-rating was due to a combination of factors, among them, sustained foreign selling and an erosion of the country’s historical policy and political stability premium.
By law, a general election must be held within 60 days after Parliament is dissolved.
