This article first appeared in The Edge Financial Daily on October 8, 2018

KUALA LUMPUR: When the stock market resumed trading after the May 9 general election, the companies deemed political-linked were hammered, followed by the construction counters due to the cancellation or deferment of mega infrastructure projects.

Most recent ones were the telecommunication players following the ruling that fixed broadband operators must reduce their prices.

Some RM12 billion has been wiped out from Telekom Malaysia Bhd’s market capitalisation year to date. The telco giant is no longer among the top 30 largest stocks, in terms of market capitalisation, although it is a member of the FBM KLCI.

Property developers might be the next that are under pressure. Developers are currently given until month end to decide whether to reduce property prices or not. If no price cut, the ministry of finance will review the sales and services tax exemption.

The list could go on, particularly for companies whose businesses are licensed by the government or which are structural monopolies.

Phillip Capital Management Sdn Bhd chief investment officer (CIO) Ang Kok Heng believes that there are more changes in policies to come, and “this is just the beginning”.

“We think that there are more [policy changes] coming, after the government has settled the debt problem,” said Ang.

Populist measures may certainly benefit the public, but may not be friendly to businessmen, Ang commented. He believes that if the government were to come out with this sort of measures too often, this will then affect the business environment, resulting in investors shying away from investing in Malaysia.

“Companies have to make some profits. Otherwise, they cannot expand and provide the best services. So, at the same time, the government has to be fair to the businessmen,” said Ang, adding that measures have to be transparent and companies have to be given the opportunity to make fair money.

“Unless the government believes that the businesses have been overcharging the public, and that they have been making excessive profits, and if the government can prove that fact to the businessmen, then [they] probably will be more accommodative to the government’s request,” he added, suggesting that the government can provide businesses some incentives to reduce the burden of companies.

MIDF Research head Mohd Redza Abdul Rahman concurred, saying “the dust has still not settled”, mostly influenced by the external front as normalisation of interest rates such as in the US, coupled with pressure on depreciating currency taking a toll on peers.

“Although our macro numbers remain good, the percentage gains or surplus have sagged a bit. Furthermore, the oil price went north but the palm oil [was] heading the opposite way,” said Mohd Redza.

Noting that these circumstances “are no fault of the new government”, Mohd Redza said this, however, is an additional burden that the government has to shoulder on top of the domestic reform.

Meanwhile, Inter-Pacific Asset Management chief executive officer (CEO) Lim Tze Cheng said: “It’s actually still quite dusty … the finance minister has been very vocal about the transparency and has allowed us to see the state affairs or state of economy of the country.

“But, [I do believe] that things really can’t get any worse from where we are now,” he said, adding that the government is lacking ways to cover the shortfall from these “populist policies”.

Lim sees these policy changes as an opportunity, saying that government-linked companies have not been very competitive and believes that it is a very good structural change for the corporates, enabling them to be more competitive in the long run.

“[In the] short term, yes ... sentiment and profitability may be affected, but in the long term it’s setting a stage for them to actually be more competitive,” said Lim.

He added the government’s role is to regulate the capital market and not to protect the capital market. “If a government wants to protect the profit of a company, why did US President Donald Trump impose tariffs, when one of the biggest hit will be Apple Inc?” noted Lim.

Lim’s portfolio has not been much affected by policy changes so far. “Our investment philosophies have been very simple; we only invest in companies which don’t rely on government support to survive. We only invest in companies, where their businesses are successful due to their own efforts,” said Lim.

After the 14th general election, fund managers have adjusted their portfolios amid expectations of policy changes.

Construction and telecommunications are the sectors to be shied from for the time being, and they see that the property sector is likely to be hit next. Plus, with the valuations of consumer stocks gone sky-high, investors may wonder which sectors to invest in next.

“The government needs to clean up and this may take at least another three to six months to let the dust settle. And it is then only when we will go through the stocks again and revalue them again if they are worth to invest [in more] or not, after the price adjustments,” said Areca Capital Sdn Bhd CEO Danny Wong, adding that investors could look at the export and manufacturing sectors as well as the oil and gas sectors for now.

Notably, brent crude futures were at US$84.72 (RM351.59) per barrel as of writing.

“The next focus could be the thematic play on currencies. With the US continuing to hike the interest rates, ringgit will definitely be cheaper,” said Wong, noting that investors should also look out for companies with earnings denominated in US dollars, or firms that have foreign operations or subsidiaries or those with US dollar currency reserves.

Wong noted that his is optimistic about the market moving forward, at least for the next two to three years, so long as that there are no crisis issues.

“On the local front, I’m not too worried, but [concerns are] more about currencies, interest rates and bond yield. There’s a very high contingency from the strong dollar against emerging-market currencies,” said Wong.

All said, over the medium to long term, the government’s push for reforms including greater transparency, reducing corruption and wastage, and strengthening government institutions is expected to be positive for Malaysia.

“If executed well, this could bring about a rerating for the Malaysian market,” said UOB Asset Management (M) Bhd CIO Francis Eng Tuck Meng.