REGARDLESS if lower voter turnout (55%) and split votes contributed to Barisan Nasional’s (BN) decisive victory in the Johor state election over the weekend, there is little doubt that Prime Minister Datuk Seri Ismail Sabri Yaakob (UMNO) will be under increased pressure to call for an early general elections.
Although the 15th General Election (15GE) must be held by mid-2023, BN which is currently chafing under a “frosty” governing coalition with Perikatan Nasional (PN) looks to regain its pre-GE14 mandate to govern independently.
Commenting on the matter, Maybank IB Research said the highly-fractious state of the current national ruling coalition – and its deleterious effect on policy making and expediency – is a major headwind at both the macro and market levels.
“In particular, strained fiscal dynamics as per Budget 2022 to ad hoc taxes/levies, principally on the corporate sector (eg the cukai makmur windfall tax) has resulted in the FBM KLCI’s earning contracting in 2022E even as GDP (gross domestic product) is forecast to grow by +6%,” opined analysts Anand Pathmakanthan and Wong Chew Hann in a strategy update.
“(All these) have dampened business/investor sentiment and raised the market’s risk premium.”
“An early GE15 that delivers a stable government is, in our view, is a sine qua non in enabling a broadening of fiscal revenue generation, principally via a shift to indirect taxation (eg GST, capital gains tax, carbon tax, all of which should be contained within the Government’s pending Medium Term Revenue Strategy due in mid-2022).”
Meanwhile, UOB Kay Hian deemed BN’s – and especially UMNO’s – resounding win reinforces its view that GE15 would be called by 3Q 2022.
“BN’s victory is seen as equity-market friendly in view of better political stability and hopes of BN deploying pragmatic business policies,” reckoned head of research Vincent Khoo.
“While GE15 is seen to be a slightly positive event, the current investment sentiment continues to be swayed by high inflation fears and US contractionary monetary policy. We maintain our defensive market stance.”
In a related development, Maybank IB Research contended that while the price surge of commodities such as oil & gas (O&G), aluminium and crude palm oil (CPO) is positive for GDP and trade, Malaysia’s fiscal upside is significantly tempered by fuel price subsidies.
“(This) means that every US$10/barrel rise in oil price (note US$66/barrel assumption under Budget 2022) will only yield a small net positive fiscal impact of RM1.4 bil or 0.1% of GDP,” projected the research house.
“Any meaningful adjustments to the fuel subsidy are only seen post-GE15 and are likely to be progressive, i.e. not a substitute for structural tax reforms.” – March 14, 2022
Pic credit: The Star
