Malaysian stock markets are expected to fall when they reopen on Monday after the shock election outcome set 92-year-old Mahathir Mohamed up to become prime minister again.
“We believe an opposition victory by Pakatan Harapan (PH) introduces some uncertainty for the equity market which could lead to significant volatility in the near term,” Nomura said in a note on Thursday. “We expect a negative kneejerk reaction in the market when the market opens on Monday – with expectation of some normalisation over the next few days.”
It pointed to “numerous issues,” such as whether the transition of power from the once-ruling Barisan Nasional party to PH will be smooth, clarity on policies for the goods and services tax and spending policies as well as how well PH’s four-party alliance will work and cabinet appointments.
“We believe this uncertainly is unlikely to enthuse investors,” it said, noting the consensus had positioned for a status quo election outcome. That left foreign investor positioning heavy even as market valuations weren’t very attractive after recent outperformance, Nomura said.
Nomura said it had been overweight on Malaysia in a Southeast Asian context, but now that was under review as it didn’t believe it could justify that call given expectations for more volatility.
Other analysts saw the likely selldown as more of a temporary effect.
“While PH brings hope for better transparency, accountability and financial prudence, investors would be sidelined by the current transitory state,” UOB KayHian said in a note on Thursday. “Hopefully, the widely [expected] market sell-off may not be as deep as feared should PH quickly obtain the royal pronouncement as the rightful government, while declaring a two-day cooling-off holiday can provide some leeway for PH to ensure the investment community that it would pursue a business-friendly policy.”
The brokerage added that the selldown could create buying opportunities.
It noted that companies perceived as politically linked, such as DRB-Hicom, George Kent and MyEG as well as selected mega-projects’ beneficiaries, may face a knee-jerk hit as PH may want to review pricing or defer some projects. AirAsia could also face a selloff as founder Tony Fernandez voiced open support for the formerly ruling party BN, UOB KayHian said.
It advised buying high-yielding defensive stocks with relatively low foreign portfolio ownership and apolitical growth stocks, such as sold-down BAT, DiGi, Magnum and YTL Power. Fast-moving consumer goods (FMCG), including breweries but excluding Nestle, could also appeal, it said.