KUALA LUMPUR (March 2): Investors are advised to stay defensive and go for export-oriented counters, oil and gas, healthcare and utility sectors, which are the least affected by the change in government, said CGS-CIMB Research.

Investors are also advised to reduce exposure to sin counters such as breweries and gaming on concerns of potentially stricter measures imposed on these activities as Islamic party PAS is part of the new coalition government.

"Stocks with high foreign shareholding may also be subject to selling pressure due to uncertainty," CGS-CIMB Research head Ivy Ng Lee Fang wrote in a strategy note today.

The research house is expecting the Malaysian equity market to stay volatile due to short-term policy uncertainties, following the unexpected change in the federal government and potentially several state governments.

“In view of these concerns, coupled with uncertainty caused by the coronavirus (Covid-19), earnings risks, sharp drops in global markets over the past week and foreign selling, there could be near-term downside risks to the FBM KLCI,” she noted.

“While the Covid-19 outbreak has hurt private consumption and exports, the abrupt change in government could impair the outlook for investments as businesses re-assess the risk landscape, as well as government spending (as policymaking is disrupted by the Cabinet reshuffle).

“We expect investors to express their risk aversion in the immediate term through a weaker ringgit, higher bond yields and a sell-down in risk assets. If the ruling coalition can fashion a solid majority coalition bloc soon, policy clarity may resurface and temper downside risks to the growth outlook,” she added.

In the face of significant uncertainty, Ng expects the dovish bias in monetary policy to strengthen and for Bank Negara Malaysia to reduce the overnight policy rate (OPR) by 25 basis points (bps) on March 3, 2020.

The central bank’s OPR is already at its lowest point since March 2011, after a 25bps reduction to 2.75% on Jan 22.