Malaysians go to the polls on May 5 and we’ll soon know the outcome of
the most closely fought general elections ever.
But no matter what the outcome, should it matter to investors?
Some analysts and fund managers that Personal Money spoke to do not
think it should matter greatly from an investment standpoint, whether it
is incumbent Barisan Nasional (BN) that returns to power or Pakatan
Rakyat (PR) that takes over, becoming the first opposition coalition
ever to helm the Malaysian government.
“Our view is that it doesn’t really matter which side wins. Ultimately,
both sides will be pro-business. It’s just a matter of how soon the
winning party can get its act together.
“What we don’t want to see is a hung parliament [which occurs if neither
coalition has an absolute majority of seats in Parliament] as there will
be prolonged uncertainty over who takes over the federal government and
this would affect businesses,” says Choo Swee Kee, executive director at
fund management firm TA Investment Management Bhd, which handles about
RM700 million across various asset classes.
Lim Chee Sing, executive director and head of research at RHB Research
Institute Sdn Bhd, says the election outcome shouldn’t matter to
investors who take a long-term investment view. “It only matters if you
are taking a trading view, when you have short-term focus and the [daily
events] can affect sentiment.”
A BN win will mean a continuation of policies and an expected
follow-through on plans and projects outlined under the Economic
Transformation Programme (ETP), which was launched in late 2010 with the
aim of transforming Malaysia into a high-income nation by 2020.
This means there is more certainty that multi-billion ringgit projects —
such as the Mass Rapid Transit linking Sungai Buloh and Kajang in the
Klang Valley, work on which has already begun, or the controversial RM60
billion refinery and petrochemical integrated development project by
national oil firm Petronas in Johor — will continue as planned.
This would help remove any uncertainties and worries that investors and
businesses may have had about things like potential policy changes
affecting ongoing plans to spur the economy.
Hence, a win by BN will likely lead to a relief rally in markets after
the election result is announced, fund managers say. Bear in mind that
there has been a lot of cash on the sidelines waiting to be invested
once all these election uncertainties and risks are removed, they point out.
However, fund managers were also quick to point out that a PR win
wouldn’t necessarily be bad for investors either.
“It’s a chance for the Opposition to address the areas of concern that
investors and businesses may have that BN hasn’t addressed at all, or
enough of, and if PR can get their act together fast enough, this could
be something positive for investors,” observes the head of retail funds
at a local investment bank who declined to be named due to the sensitive
nature of the topic.
Analysts and fund managers generally concur that if the Opposition were
to gain control, there is likely to be a knee-jerk reaction, with
markets suffering temporarily amid a short period of uncertainty.
The Opposition would need to move quickly to assure investors of its
policy direction and any changes it wants effected so investors have a
degree of comfort that it can be “business as usual” even under a new
leadership.
“While the sentiment for change is very strong, there’s also fear of
uncertainty. There will be a knee-jerk reaction in markets simply
because of fears of potential changes in policy direction and sanctity
of contracts.
But once the outlook gets clearer, markets will rebound. Bear in mind,
any sell-off should be seen as an opportunity for investors to buy as,
don’t forget, all this is happening amid a backdrop of an improving
global economy. The election is just a ‘localised’ factor,” RHB’s Lim
advises.
Some analysts, however, do think that the outcome of the election should
matter to investors.
“It’s a matter of different policies. Let’s say the Opposition came into
power and were to scrap some projects that they don’t think are
feasible. It could affect the companies that are involved in those
projects,” observes Lee Cheng Hooi, head of retail research at Maybank
Investment Bank Bhd.
Depending on which coalition wins, it could also affect the cost of
doing business as each side has different views on things like reform on
tax structures and electricity tariffs. This has led to some companies
putting off certain plans until after the election is over. “That’s
created a drag on certain industries,” says Lee.
RHB’s Lim believes that of all the asset classes, including fixed income
instruments and cash, equities stand to give investors the highest
return amid all the uncertainty.
“Markets hate uncertainty, so as soon as investors get some certainty on
who wins and there’s a clearer outlook, the money will come pouring in
as there are a lot of investors waiting on the sidelines. I think it’ll
be a swift rally,” says Gerald Ambrose, managing director of fund
management firm Aberdeen Asset Management Sdn Bhd.
He notes that foreign funds have been more bullish than local funds on
Malaysian equities, having been net buyers for the last four months and
helping propel the FBM KLCI to new highs even after the dissolution of
parliament and the date of the polls was announced. Volumes on sovereign
bonds too rose above average following the election date announcement,
while the ringgit strengthened.
“The way the markets are being well-supported, it would seem like
they’re pricing in a BN victory,” observes Maybank’s Lee.
Investors should consider stocks in the consumer sector, such as food
and beverage or cigarette companies, as these are deemed to be
“apolitical”, he adds.
Foreign funds hold a high portion of Malaysian government securities —
they held a record 43.4% of the bonds as at the end of last year,
attracted by a relatively high yield gap and a steady ringgit — but
analysts don’t think there’ll be a massive sell-off even if there were
to be a change of government. “We don’t think there’ll be a major
upheaval, [so] there shouldn’t be panic,” says Choo.
