KUALA LUMPUR (Nov 21): A cumulative RM7.32 billion of value was wiped off the market capitalisation of stocks on Bursa Malaysia on Monday (Nov 21), in a knee-jerk reaction to the outcome of an inconclusive government following the 15th general election (GE15) that was held last Saturday (Nov 19).
Most sell off by unsettled investors was seen in sectors of consumer products, banking, gaming and the breweries.
Gaming and breweries counters sell down alone amounted to a RM2.75 billion market cap wipe out on Monday.
Maybank Investment Bank in a report noted that although investors were already braced for a hung Parliament scenario in the run-up to GE15, the unexpectedly strong showing by Islamist party PAS equates to a significant structural step-up in uncertainty.
The report said such outcome has added to the market’s risk premium surrounding Malaysia’s future political and policy direction, regardless of which coalition prevails in forming the next Government.
“‘Sin’ sectors like gaming and breweries are most obviously in the firing line, and we have removed Genting (M) and Heineken from our top picks, pending clarity on state and national level intentions,” said Maybank Investment in the report on Monday.
Similarly, banking counters such as RHB Bank Bhd, Malayan Banking Bhd and Hong Leong Financial Group Bhd were also among banks that succumbed to heavy selling by investors.
Although Perikatan Nasional (PN) in its manifesto has made no significant mention of policies that impact the banking sector, the sector sees risk related to measures announced by the party chairman Tan Sri Muhyiddin Yassin.
Firstly, PN said it intends to spur the growth of the Islamic financial system to 50% of the entire banking system (from 35% currently) within five years by optimising the use of Islamic financial instruments such as wakaf, zakat, Ar-Rahnu and hibah.
Secondly, the coalition, if it comes to power, would continue with a more targetted and effective loan restructuring scheme/moratorium for Small and Medium Enterprises.
“Among other sectors, banks are at risk of another (albeit targetted) loan moratorium per PN’s manifesto. However, the impact to the banking system would be fairly well contained in our view, for there is unlikely to be much of a modification loss, as most of the SME loans are variable rate in nature.
“Moreover, the percentage of SME loans under repayment assistance was just 2.3% of total system (banks and development financial institutions) loans as at end-June 2022,” said Maybank.
Meanwhile, Bursa Malaysia, which was mostly in the red on Monday, pared some of its losses and closed marginally lower, shedding 1.36 points or 0.09% to end at 1,447.96 against 1,449.32 last Thursday (Nov 17).
Selloffs during the morning session saw the FBM KLCI falling as much as 21.57 points to the day’s low of 1,427.75, before rebounding to recoup most of its losses.
Meanwhile, TA Securities in a report on Monday said the emergence of PAS, which is perceived as Muslim fundamentalist by many, as the dominant force in Malaysia’s political scene and the PN coalition will unnerve investors and can be a big hurdle for a meaningful recovery in the FBMKLCI post GE15.
“Thankfully, the presence of other ‘centrist’ political parties in the yet-to-be-concluded political coalition that will form the Government, can act as the neutralising force but investors are expected to adopt a ‘sell first and watch’ mentality in the immediate term until the dust settles,” said TA Securities.
At 12.8 times consensus CY23PER, the FBMKLCI is cheap, as it trades at about a 11.6% discount to comparable developing peers’ valuation of 14.4 times.
“Nonetheless, local and foreign investors need more assurance of political and policy stability to sustain buying interest in local equities,” the research outfit added.
As such, the benchmark index could test 1,400 psychological levels this week, pending the selection of a new prime minister (PM) and the party that will be occupying Putrajaya.
“With domestic political uncertainty remaining a big hurdle for a meaningful recovery in the FBMKLCI post GE15, we are inclined to cut our end-2022 FBMKLCI target to 1,490 from 1,590, based on CY23 PER of 13.5 times,” said TA Securities.
The research firm added FBMKLCI could underperform in the initial period, but it is expected to recover within three months, witnessed after GE14.
“With anti-hopping laws in place, there should be better political stability after GE15 unless a party within the ruling government's alliance withdraws support and causes the simple majority to vanish,” the research outfit added.
Regardless of the coalition government, ultimately, the focus would need to be on managing the economy and navigating the country from risks of a global recession, said Affin Hwang Investment Bank in a report on Monday.
“In fact, we think the external environment will have a larger bearing on the market than the recent GE15 outcome. Here, we continue to see downside risks for the market on this front, given risks of further capital outflows as the US$ strength dominates,” it said.
The bank targets a year-end FBMKLCI of 1,545.
GE15 ended with a historic outcome with no political coalition securing a simple majority of 112 parliamentary seats (out of total 222) to form a Federal Government.
Pakatan Harapan (PH) clinched the highest number of seats at 82 (or 37% of total), followed by Perikatan Nasional (PN) at 73 (33%), Barisan Nasional (BN) at 30 (14%), and state-based Gabungan Parti Sarawak (GPS) at 22 (10%).
The biggest “winner” was PN (led by Islamic party PAS, together with Tan Sri Muhyiddin’s Bersatu with a sizeable increase in the number of seats won at 73.
The clear “loser” was BN (led by Umno), which saw a sizeable fall in the number of seats won at 30.
Similarly, PH (comprising Anwar Ibrahim’s PKR, together with DAP, Amanah and Upko, alongside “friendly party” Muda) lost eight seats, landing at 82.
Get our comprehensive GE15 coverage here.