By Lawrence Yong
Market watchers say Malaysian equities should perform well over the next six months as Barisan Nasional (BN) retaining power after the 13th general election augurs well for government-linked companies which largely drive the FBM KLCI index of top stocks on Bursa Malaysia.
Among research houses, Maybank and TA Securities were some of those who quickly upgraded their year-end targets for the KLCI after Barisan Nasional (BN)’s Sunday night’s win of 133 out of the 222 seats in Malaysian Parliament. The research unit of Malaysia’s biggest bank, Maybank IB Research said that the KLCI may end up at 1,815 points by year end, up from previous target of 1,710.
The rally could be liquidity-driven, said other analysts who echoed the same tune. Some risk averse investors however, may have taken their money off the table in the last few months due to political uncertainty and may now return to Bursa Malaysia, with the KLCI seen as mostly underperforming compared to regional and global bourses.
“The removal of election risks should now underpin the return of risk appetite,” an analyst from AmInvestment Bank Research noted.
Analysts recommended investors relook at politically-linked stocks such as Gamuda Bhd, IJM Corp Bhd, Tenaga Nasional Bhd, Malayan Banking Bhd, CIMB Group Holdings Bhd, Genting Bhd, UEM Land Holdings Bhd, SapuraKencana Petroleum Bhd, MMC Corp Bhd and DRB-Hicom Bhd, Malaysian Resources Corp Bhd and Cahya Mata Sarawak Bhd, which are regular government contractors. With BN securing 133 of the 222 seat in Parliament, analysts expect the government’s steadfast policy to fast-rack Malaysia into developed status and back Bumiputra entrepreneurs to march on un-relentlessly.
Even though Malaysia has 13 diverse states, most of the country’s economy is driven from Putrajaya where the Prime Minister and his department reside. The Federal government holds sway over the bulk of the spending, in contrast to the respective states.
Most Malaysian investors have been cautious over the last two years even as regional and global bourses rose.
“We can only surmise that some of these previously-saved funds will find their way back to the market, thereby providing a relief rally over the shorter term,” Public Investment Bank noted.
BN’s manifesto backs the Economic Transformation Program which aims to attract US$444 billion (RM1,318 billion) investments (mostly in oil and gas) and also mega-transport infrastructures, power projects and more low-cost houses for the poor.
Some analysts earlier factored in that construction sector, which is backed by long term contracts, could suffer a setback if pro-reform Pakatan Rakyat seized control of Malaysian government. Pakatan had promised to abolish highway tolls, scrap dubious projects and institutions and implement open tender system for all government contracts.
Pakatan has retained power in richer Malaysian states such as Selangor and Penang, which they have managed well financially, albeit on a smaller scale, over the last five years.
However, even under BN, structural economic issues, which have kept Malaysia in a middle-income trap, may set in over the longer term. Malaysia’s government budget is highly dependent on oil revenues with income taxes making up only 11 percent of its revenue. This needs to be addressed by BN and the likely move is that a goods and services tax may soon be instituted, analysts said. This may range from 4-10 percent.
Syed Mokhtar
Analysts said that billionaire Syed Mokhtar Al-Bukhary, who is Malaysia’s richest bumiputra according to Forbes magazine and often seen as BN’s prefered business partner, would probably have reason to applaud BN surviving the biggest show of democracy in Malaysia’s history on Sunday. BN won the elections even as 80 percent of Malaysia’s 13 million eligible voters turned up, the highest ever recorded. Reports showed that opposition Pakatan Rakyat and BN had almost equal shares of popular votes nationwide.
“Syed Mokhtar -ontrolled stocks may also bounce higher, although we continue to be wary of most of the stocks under his stable, partly due to weak fundamentals, except for companies which feature both stable cash flows and high dividend yields,” UOBKayHian Research noted.
UOBKayHian said that CI Holding Bhd may also be thrown into the limelight, with its major controlling shareholder Johari Abdul Ghani having won a parliamentary seat in Titiwangsa.
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