After the shock election win by Malaysia’s opposition coalition last week, the stock market is likely to sell off when it reopens on Monday amid political uncertainty, CIMB said in a note last week.
It expected that if the benchmark KLCI were to fall by one to two standard deviations from Tuesday’s close, the last time the market traded, that would be an around 4-8 percent plunge, or 70-140 points, it said, noting that after the 2008 elections, the KLCI hit its 10 percent limit down with circuit breakers kicking in for the first time ever.
CIMB cut its end-2018 KLCI target to 1820 from 1880 to reflect short-term uncertainties. The KLCI closed at 1846.51 on Tuesday.
But CIMB added, “we view any major sell-off in the market as a buying opportunity for well-managed companies with good dividend yields,” noting that valuations would become “very attractive” at those levels.
“We believe many of the final policies by the new government will likely be more moderate than first impressions, and would take into consideration feedback from the corporate sector. This should gradually entice the return of risk appetites,” it said.
It stuck with its key top picks of Axiata, Dialog and Westports.
For strategy, its short-term advise was to sell “high-beta, cyclical sectors and stocks perceived to have strong political connections,” while accumulating consumer stocks, small-caps exposed to consumers, well-managed defensives such as utilities and telcos and export-oriented industries.
It tipped the top losers as: Gamuda on tender exposure to MRT 3, high-speed rail (HSR) and highway concessions, YTL for exposure to HSR and Gemas-JB rail double tracking, MRCB for exposure to HSR and Eastern Dispersal Link, Protasco for exposure to government road maintenance and housing projects and IJM for exposure to highways and rail contracts.
CIMB added that beneficiaries of the new government’s policies, including abolishing the goods and services tax and raising the minimum wage, would be consumer stocks such as BAT, F&N, Nestle, CCK, QL Resources, Bonia, Kawan Food and tobacco and brewery stocks.
But it noted that there were earnings risks from the higher minimum wage and for industries with high foreign labor, such as the manufacturing and agriculture sectors.
It also tipped downside risk to Astro as the new government planned to review companies with monopolistic markets, such as in the pay TV market.
“We see downside risk to Astro if the PH government prevents Astro from having exclusive content ownership for popular intellectual properties (IPs) such as English Premier League (EPL) etc.,” it said.
Additionally, companies seen as politically linked to the previous government, such as MyEG, Prestariang and Destini, could face selling, CIMB said.