GE13: BN win - a boon for stock market on greater certainty

KUALA LUMPUR (April 24): A convincing victory for Barisan Nasional (BN) in Malaysia’s 13th general election (GE13) will see the stock market make a quantum leap as there is certainty in the current economic policies and reforms will continue.

The market will also likely see positive reaction even if BN wins by a small margin, as this is what most analysts are expecting.

Analysts and fund managers generally feel the market will jump if BN wins convincingly as the victory will offer assurance on the continuity of existing political and economic policies such as the Economic Transformation Programme (ETP) and Government Transformation Programme (GTP).
Affin Investment Bank Bhd analyst Andy Ong said if BN wins with a small majority, which is the baseline case adopted by most observers, the country’s political risk will recede and domestic liquidity will return to lead to an immediate market upside.

Credit Suisse analyst Tan Ting Min said the research firm expects the KLCI to see a “relief rally” should BN wins convincingly and caretaker Prime Minister  Datuk Seri Najib Tun Razak secures sufficient mandate to continue leading the coalition.

According to Tan, companies seen benefiting from a continuity in the nation’s leadership include CIMB Group Holdings Bhd, Gamuda Bhd, IJM Corp Bhd, IJM Land Bhd, Genting Bhd, Genting Malaysia Bhd, Bumi Armada Bhd, Tenaga Nasional Bhd, and UEM Land Holdings Bhd.

“It will be positive for Malaysia’s economy, in our view, as political and economic reforms (via the ETP and GTP) can be pushed through.

“(However) A slim BN majority could lead to an internal leadership challenge,” Tan said.

The analyst said political infighting may derail reforms such as the proposed goods and services tax and subsidy cuts, and the ETP could be put on the backburner.

A fund manager told that risk appetite is expected to improve when the dust settles after the election. He said this is in anticipation that investors from across the spectrum will accumulate more volatile stocks to derive higher gains.

“Investors may shift their attention from low to high-beta stocks,” the fund manager said over the phone.

In fact, trading dynamics ahead of the May 5 polling day indicate that institutional investors are anticipating a victory for BN.

According to the fund manager, institutional investors have been instrumental in pushing the FBM KLCI to fresh highs above the 1,700-point level as pre-election jitter keeps retail investors on the side lines.

A BN win could lure investors into sectors such as construction, property, oil and gas (O&G) and healthcare industries, he opined.

He said stocks to watch will include Gamuda, UEM Land, SapuraKencana Petroleum Bhd, Bumi Armada, IHH Healthcare Bhd and Faber Group Bhd.

“Property firms with landbank in Johor are also expected to gain,” he said.

Sam Ng, the president of the Malaysian Remisiers’ Association, said retail players are more concerned about the final outcome of the GE, hence, they adopt a more cautious approach now.

“Retail investors trading via the Internet have been quiet while non-Internet players are ignoring the market. But that will change should BN wins the election with a strong majority,” he said.

The investment fraternity will return to the market if BN wins and retail play will be reactivated, Ng told .

But meanwhile, global dynamics are also expected to spur the KLCI’s gains.

After the election, the KLCI is expected to play catch-up with other Southeast Asian stock markets, which have been refreshing their all-time highs on liquidity generated from Japan’s monetary easing policies.

Monetary easing in the world’s third-largest economy will essentially create a larger supply of the yen which needs to be parked in higher-yielding investments across the globe, the fund manager said.

In fact, strong global liquidity has led foreign funds to enter many equities markets for over the past one year even before the general election was in sight.

Latest data compiled by MIDF Amanah Investment Bank Bhd show that foreign funds were net buyers of Asian equities for 17 out of the 25 weeks since November 2, 2012.

(Source: The Edge Malaysia)