KUALA LUMPUR (Aug 17): Analysts see sentiments in the capital markets remaining weak following the resignation of Tan Sri Muhyiddin Yassin as prime minister yesterday (Aug 16). 

“We are of the view that the market is likely to weaken due to concerns over uncertainties on the future leadership and policy direction of the country,” said CGS-CIMB Research in a report.

Hong Leong Investment Bank (HLIB) Research also opined that market sentiment will remain soft until more clarity on the political situation surfaces.

Yesterday, the King appointed Muhyiddin as the caretaker prime minister until a successor is appointed. 

HLIB Research noted that during the political crisis in February 2020, after the “Sheraton Move”, the FBM KLCI benchmark index had shaved off 4.2% during the week where there was no ruling government in place. 

“From a market perspective, policy continuity, particularly on vaccination rollout and economic reopening, is our key concern from this political fluidity,” it said. 

HLIB Research is forecasting that the KLCI will end the year at 1,580 points. At noon break, the benchmark index closed up 16.5 points or 1.1% at 1,519.4 points.

Meanwhile, CGS-CIMB Research believes that political uncertainties will be negative for sectors like banks, construction and property. Stocks with foreign shareholding will also be negatively impacted by the uncertainties. 

Sectors that would be least impacted, says CGS-CIMB Research, would be exporters in the glove, technology and plantation sectors, as well as defensive stocks. 

“KLCI could potentially trade as low as three standard deviation below its forward average PE on political concerns. This would place KLCI at 1,415 points, where the market may bottom,” said the research house.

In a note, Fitch Solutions Country Risk & Industry Research said the continued government instability will undermine investors confidence, but it does not see the resignation of Muhyiddin as a surprise to the markets or causing an outsized impact on both the equity and bond markets in Malaysia. 

Muhyiddin’s resignation would mark the second consecutive prime minister to resign since the start of 2020. It would also be the third government for Malaysia since the last general election in May 2018. 

On what will happen next for the country’s political crisis, analysts said it will likely be up to the King to meet with lawmakers to see who has the majority to form the government.  

However, that could prove difficult since there is no single party or coalition that has sufficient numbers for a majority, according to HLIB Research.

“Partnerships between rival parties must be formed for a majority to surface — tough but not impossible in politics,” it said.