IT would not be too far-fetched to assume that the powers that be are implementing the new minimum wage of RM1,500/month effective May 1 as a bait to canvass for votes in the event that an early election has to be called amid mounting political pressure post the recently concluded UMNO general assembly.
According to Prime Minister Datuk Seri Ismail Sabri Yaakob, the new minimum wage (last revised on Feb 1, 2020) will initially apply to big firms and government-linked companies.
The revision that took place two years ago saw minimum wages subsequently increased by RM100 to RM1,200/month for 56 major cities. For non-urban areas and rural towns, the minimum wage stands at RM1,100/month currently.
Commenting on the proposed wage hike, CGS-CIMB Research expects the higher minimum wage to lead to higher cost of goods and services for companies which are likely to partially pass this on to consumers in 2H 2022F.
“However, for companies which are not able to pass on the costs due to weak demand, profit margins and earnings could tumble,” cautioned head of research Ivy Ivy Ng Lee Fang in a Malaysia strategy note.
“On the bright side, the higher minimum w age will boost purchasing power of the low income group and help them cope with the rising costs of living which is slightly positive for the consumer sector.”
While details on the mechanism of the new RM1,500/month (US$357/month) minimum wage will be announced later, about 2.3 million minimum wage workers in Malaysia are expected to benefit from the exercise.
Economic sectors that are likely to be affected by the 25% increase in minimum wage are plantation, manufacturing (i.e. gloves, furniture and semiconductor), construction/property and services (i.e. travel, food & beverage, hotel and retail).
“The higher minimum wage will also allow Malaysia to attract workers and in some instances speed up the decision to automate processes. The mid-level minimum wage in Indonesia, the Philippines, Thailand and Vietnam ranges from US$157 to US$270/month,” reckoned CGS-CIMB Research.
In a related development, the research house expects the 15th General Election (GE15) to be held as soon as August this year assuming that the memorandum of understanding (MOU) on Transformation and Political Stability signed between the Government and opposition Pakatan Harapan leaders “is not abandoned”.
“Should an election be called, we see heightened stock market volatility in the period after parliament is dissolved, particularly during the campaigning period,” projected CGS-CIMB Research. “If selling pressure is intense in the two to three weeks before the polls, it would mean that most of the potential bad news is likely already priced in.”
Nevertheless, the market is likely to stage a relief rally if the new Government holds a stronger majority in parliament. “Our tracking of the past nine GEs reveals that the FBM KLCI tends to deliver higher average returns up to 12 months post elections compared to the 12 preceding months,” added the research house. – March 21, 2022
