Malaysia’s shock election outcome is widely expected to send the stock market there reeling when it reopens on Monday, but while Nomura noted the negatives, it also pointed to some stocks that could benefit.
Nomura pointed to downside risks, particularly to its 5.5 percent economic growth forecast, as well as the impact the new ruling party’s promised review of the goods and services tax (GST) could have on sovereign credit rating reviews, debt outflows and ringgit weakness.
But while it expected Malaysian equities to turn volatile amid a rising political risk premium and potential reversal of foreign inflows, it pointed to a “sense of optimism on the ground” after the election.
Winners and losers
“State-owned enterprise (SEO) and government-linked investment company banks, construction, airlines, developers and utilities have downside risk when market opens,” Nomura said in a note on Friday, but it added, “Non-SOE banks, gaming, consumer, telcos, petrochemicals/oil & gas and REITs might outperform due to a combination of a likely flight to safety, weaker ringgit, higher minimum wage and potential GST removal.”
It added that exporters and tech were also likely to perform well.
Nomura tipped gaming companies to benefit from a weaker ringgit, in part due to spurring higher foreign tourism, and the potential removal of the GST, which would effectively lower gaming taxes.
For petrochemicals, Nomura said the change of government wasn’t likely to have any major impact, while Petronas Chemicals Group could be a “significant” beneficiary of a weaker ringgit, combined with a stronger oil price outlook. Oil and gas shares were also likely to benefit from expectations oil prices would remain high this year, it said.
Nomura said that while property developers may face a hit from a higher minimum wage, the REITs would likely benefit from a near-term flight to safety.
Watch the consumer
For the healthcare sector, Nomura said the proposal to abolish the GST and introducing a healthcare subsidy for low-income families, combined with a weaker ringgit, could be a positive.
“IHH’s Malaysia hospitals have been impacted by the rollout of the GST with some local patients shifting to public hospitals due to the higher
costs,” Nomura said. “Depreciation of the ringgit would benefit IHH as it would make it cheaper for medical tourists to come to Malaysia.”
Other consumer stocks also faced a positive scenario, Nomura said, noting that an increased minimum wage and the possible GST removal would help consumer sentiment.
Nomura said it reshuffled its top picks, dropping Tenaga Nasional, AirAsia and CIMB.
Its new top pick list has a “defensive core” of Public Bank, Bursa Malaysia, Axiata and Malayan Banking, as well as tourism and consumption plays through Genting Bhd., Genting Malaysia, Malaysia Airports Holdings and Mynews Holdings, and cyclicals through Sime Darby, Muhibbah Engineering, Sunway Construction and Petronas Chemicals.
Nomura expected banking stocks were likely to face the brunt of the market selldown and flight to safety as they are the largest and most liquid index constituents. The sector was also expected to benefit from planned mega-projects, amid construction and working capital loans, as well as deals with Chinese banks to finance property projects, it noted.
“A review of such projects might be taken negatively by the market,” Nomura said.
But among the financials, it noted it recently upgraded Bursa Malaysia, expecting higher volatility would benefit stock exchange earnings.
Nomura said the construction sector would be the most directly negatively hit.
“Most of the Pakatan Harapan manifesto promises, such as reviewing mega-projects and their funding, increase in minimum wage, are directly negative to the construction sector, as orderbook pipeline, which was looking strong with the anticipation of multiple infrastructure and Belt and Road initiative jobs, will all be carefully scrutinized and some might even be scrapped,” it said.