RHB Research has earmarked the imminent 15th General Election (GE15) coupled with the hawkish US Federal Reserve monetary policy pivot, the Russia-Ukraine geopolitics concerns and China’s COVID-19 restrictions as near-term source of volatility that can adversely impact Bursa Malaysia.
Looking at the past five general elections for market trends is somewhat inconclusive as polls are just one of many factors influencing the tone and direction of the stock market, according to the research house. Moreover, an analysis of sectoral performances over past election cycles also do not draw out clear winners and losers.
“A hung parliament that degenerates into another constitutional crisis would be a negative outcome for markets given the leadership and power vacuum that would ensue,” opined heads of research Alexander Chia in a market strategy note.
“While the Anti-Party Hopping Bill has been enacted, side deals and horse-trading between the various political groupings will have highly unpredictable outcomes.”
“We think outcomes are far from assured, and much will depend on the level of voter turnout. High levels of political fatigue and voter apathy – especially among the young and first-time voters – will ensure the return of the old guard,” added RHB Research.
The research house further noted that the key political parties for most part have yet to put in place clear lines for leadership succession.
“Entrenched incumbency has stymied the process of renewal, cementing the reason why they fail to resonate and connect with younger voters especially,” it observed.
The resulting voter apathy has been a contributing factor to the low voter turnout in recent state polls. Neither side has, so far, been able to deliver a persuasive political or economic narrative.”
If a weak political leadership emerges, RHB Research is concerned that the new Government will likely be unable to bring about the sorely needed long-term reforms while questions over its longevity would be negative for markets, including foreign investors.
“Conversely, a Government with a strong majority post-GE15 would be the preferred outcome for investors. Nonetheless, markets will want to see adherence to good governance principles and the rule of law,” justified the research house.
“We expect that positive political outcomes from GE15 would only have a short-term influence on markets whose fundamental outlook remains dependent on the evolution of the global macroeconomic environment.”
Compounding domestic political uncertainties is the US rate hiking cycle which is expected to continue through 1H 2023 with the Federal Funds Rate (FFR) expected to peak at 4.50%-4.75%.
However, with real rates deeply in negative territory, a tight US labour market and rising wages (offset by easing commodity prices), RHB Research said it is unable to rule out the possibility of the terminal FFR rising further should inflationary pressure prove to be stickier than anticipated.
“Such a scenario would come at the expense of risk assets with odds lengthening on the probability for a soft landing,” projected the research house.
“A key event to monitor is the 20th National Congress of the China Communist Party which will kick off on Oct 16. The party is expected to endorse a third term for President Xi Jinping and offer clues on the zero-COVID policy.” – Oct 17, 2022
Main photo credit: The Star
