THE 15th General Election (GE15) is likely to be held in the second half of 2021 (H2 2021) once the COVID-19 pandemic subsides and if the country is able to control the spread of the outbreak through a mass vaccination programme, said CGS-CIMB Securities Sdn Bhd (CGS-CIMB).
On Nov 28, Prime Minister Tan Sri Muhyiddin Yassin indicated in his speech that a general election would take place once the COVID-19 is brought under control.
“He has indicated that he plans to return the mandate to the people and let them choose the government they want. This could lead to profit-taking due to uncertainty in the potential outcome from the election,” said CGS-CIMB in a note today.
The stockbroking firm said should an election be called, it expects stock market volatility to heightened in the period after Parliament is dissolved or expired, particularly during the campaigning period.
“But the stock market performance immediately after the elections will be largely determined by the degree of selling pressure during the campaigning period, and the actual polling results.
“If selling pressure is intense in the two to three weeks before the polls, it would mean that most of the potential bad news would have already be (factored) in the share prices. Also, the market is likely to stage a relief rally if the new government holds a stronger majority in Parliament,” it noted.
CGS-CIMB said its tracking of the past nine general elections revealed that the FTSE Bursa Malaysia KLCI (FBM KLCI) tended to deliver higher average returns of up to 12 months post elections as compared to the preceding 12 months (before elections).
Meanwhile, concerns over the potential downgrade of Malaysia’s bonds in FTSE Russell’s World Government Bond Index (WGBI) may lead to short-term outflows of foreign funds and heightened volatility in the market.
CGS-CIMB said concerns over slippage in fiscal metrics, lingering political uncertainty and weaker prognosis for improvements in governance standards had led Fitch Ratings to downgrade Malaysia’s sovereign ratings outlook to BBB+ from A- with a stable outlook, though it remained safely in the investment grade category.
“We do not expect further downgrades by Fitch, though markets may be watching whether Standard & Poor’s and Moody’s may take a dimmer view on their current rating for Malaysia,” it added.
The current foreign shareholding in Malaysia as at end-November 2020 was 20.8% at an estimated value of around RM364 bil, with every 1.0 percentage point change in the foreign shareholding ratio will lead to an outflow of around RM17.5 bil, said CGS-CIMB.
It projected the FBM KLCI earnings to contract 10.1% this year before rising by 38% in 2021.
“After reflecting the changes in the KLCI constituents, we raise our end-2021 FBM KLCI target to 1,759 from 1,732 points, based on an unchanged price earnings target of 16.2 times. We advise investors to venture into selective cyclicals that offer deep values for those with higher risk appetites,” it said.
CGS-CIMB’s eight themes for 2021 are laggard plays, beneficiaries of foreign fund inflows, growth stocks, retail picks, dividend yielders, government-linked companies picks, tourism recovery plays, and Shariah picks. – Dec 16, 2020
