The stock market is expected to fall if the opposition coalition Pakatan Rakyat (PR), which has no track record in running the federal government, wins the coming general election and takes over control of Putrajaya.
But the market could recover quickly from this knee-jerk reaction if PR, seen as business-friendly, could decide fast who will be the prime minister and form its Cabinet soon.
It will be worse for the market if either PR or the incumbent Barisan Nasional (BN) wins with a very slim majority, or if there is a hung Parliament, as uncertainty will linger on until a new government is formed.
These views are prevalent among fund managers, analysts and dealers when theedgemalaysia.com did a cursory survey of market players this week.
Ang Kok Heng, who manages RM1.4 billion worth of funds for Philips Capital Management Sdn Bhd, said: “If PR wins, the market will definitely fall as markets do not like uncertainty. This will go on until the dust settles and PR starts managing the country.”
He added: “Most in the market are now betting that the BN will win. If it is otherwise, the market will fall. But we are prepared to buy up beaten-down stocks that we like. Our strategy is to buy low and sell high.”
While seeing value in banking, oil/gas sectors now, Ang said after the election results are announced, investors should go for short-term technical trading.
“When quality stocks plunge, we will buy. You can’t select sectors when the whole market plunges. You have to go by stocks,” he advised.
Credit Suisse’s analyst Tan Ting Ming, in her recent research note, opined: “If PR wins, the market could see a knee-jerk reaction as equity investors dislike change and uncertainties. Without a track record, there will be political and economic uncertainties if PR takes over.”
Under PR rule, the market could expect monopolies and concessions to come under review, and Tenaga Nasional may suffer a hit as PR has stated in its manifesto it wants to cut electricity tariffs, she said.
And REITs, consumer staples and telcos will likely outperform, according to Tan.
She said if PR implements its manifestos, Malaysia’s budget deficit could worsen as PR may increase subsidies and hand-outs.
A senior institutional sales manager, who declined to be named, shares the views of Ang and Tan.
She said: “If BN wins, the market will rally. If PR wins, the market will definitely fall. But under PR, if the question of who becomes the next prime minister is settled fast, the market will calm down. Forming a cabinet promptly will also instil confidence.”
Under PR rule, counters linked to caretaker Prime Minister Datuk Seri Najib Razak such as CIMB Holdings, PNB-controlled and Khazanah-linked shares are likely to lead the decline.
And companies which have been awarded the BN caretaker government’s contracts after the dissolution of Parliament may be hit, as they may not be recognised by the new government.
In fact Najib, who is leading BN in this most-fiercely contested general election in the country’s history, was one of the first political leaders to talk about post-election market reactions.
In a recent interview with Bloomberg, he said: “The market, the currency (ringgit) will take a very sharp decline if the opposition wins.”
Bloomberg reported that companies controlled by Tan Sri T. Ananda Krishnan and Tan Sri Syed Mokhtar Al-Bukhary may face government scrutiny should PR win.
Companies linked to these two billionaires include Astro, DRB-Hicom, Maxis, MMC, Padiberas and Tradewinds.
But the worst for the market is likely to come if the election outcome shows a very close win for either BN or PR, which could result in a hung Parliament as the balance of power is almost equal or equal.
As there are 222 parliamentary seats up for grabs, BN or PR will have to win 112 seats to claim simple victory, and many more to claim absolute win.
A win by either group with a very slim majority is likely to plunge Malaysia into prolonged political crisis, as the two rival groups are likely to scramble for power by enticing elected MPs to cross over to their camps.
In the unlikely event that there is no leader who can command majority support, the King may have to step in to appoint a caretaker leader.
“A hung parliament would be the worst possible outcome of the election. If this happens, large domestic investors may hold on to their equities. If they are negative, trim their portfolio by 10-20% and short index futures,” advised an investment banker.
Many political analysts believe that if BN wins narrowly, Najib’s leadership could be challenged at the next general assembly of his party UMNO. And this will add more political instability.
As most in the market are now betting that the BN could win by a majority of one to three percent, anything beyond this margin will be “a bonus for the market”, said market players.
As long as BN wins, construction stocks such as Gamuda and IJM, and gaming stocks could still see a relief rally. UEM Land should continue to thrive while business will be as usual for most banks, said Tan.
While many see the market fall if PR wins or if there is a draw, they do not rule out the possibility that the stock market could rebound quickly if uncertainty could be removed promptly.
While foreign funds are lurking ahead of the general election, pushing the benchmark FBM KLCI to new record highs, there are also pools of local funds and cash-rich investors who are waiting to make a kill.
