UNTIL more clarity surfaces on the political front, the local bourse is expected to remain volatile with a downward bias.
This is regardless of the fact that news on Prime Minister (PM) Tan Sri Muhyiddin Yassin’s resignation yesterday (Aug 16) is not a major surprise for the market since Umno (a key ally in the ruling coalition) has officially withdrawn its support for the PM on July 7.
CGS-CIMB Research foresees the stock market to weaken due to concerns over uncertainties on the future leadership and policy direction of the country.
“The FBM KLCI could potentially trade as low as 3 s.d. (standard deviation) below its forward average P/E (price-to-earnings ratio) on political concerns. This would place the FBM KLCI at 1,415 points where the market may bottom,” cautioned head of research Ivy Ng Lee Fang in a strategy note.
“In the previous political crisis, the FBM KLCI fell 3% or 48 points (Feb 21-28, 2020) when the country was run by an interim PM.”
Recall that on Feb 24 last year, the then PM Tun Dr Mahathir Mohamad resigned following the collapse of the Pakatan Harapan (PH) Government ruling coalition. The ensuing departures left the grouping comprising PH and Warisan with only 101 MPs or 11 short of the minimum majority of 112.
This led to Muhyiddin’s appointment as Malaysia’s eighth PM on Feb 29 at a time when the country was negatively impacted by the COVID-19 pandemic. The FBM KLCI fell by 3.5% a week after the PM took office.
According to CGS-CIMB Research, political uncertainties will be negative for domestic sectors like banks, construction, and property as well as stocks with foreign shareholdings with exporters (gloves, technology and plantations) as well as defensive sectors to be the least affected.
Hong Leong Investment Bank (HLIB) Research also expects market sentiment to remain soft until more clarity on the political situation surfaces.
“During the last political crisis in February 2020 following the ‘Sheraton Move’, the FBM KLCI fell -4.2% during the week that there was no ruling government in place,” observed head of research Jeremy Goh.
“From a market perspective, policy continuity (particularly on the vaccination rollout and economic reopening) is our key concern from this political fluidity. Our 2021 gross domestic product (GDP) forecast is 3.1% and year-end FBM KLCI target is 1,580 (15.7 times PE).” – Aug 17, 2021
