MalaysiaÆs stockmarket still on shaky ground
The ruling partyÆs inability to hold on to a majority in parliament raises concerns over the direction of much needed economic reforms.
In a surprise outcome on March 8, MalaysiaÆs ruling Barisan Nasional (National Front) coalition failed to maintain an expected two-thirds majority in parliament following the general election, losing five of the country's 13 states and 82 of its 222 parliamentary seats to opposition parties. The ruling party previously held on to the majority for the most part since 1957.
The election results have spooked MalaysiaÆs stockmarket, which ended down 9.5% on March 10, with the benchmark Kuala Lumpur Composite Index shedding $30 billion in market capitalisation. The market has since recovered some of its losses on what analysts described as a technical rebound, but continues to be on shaky ground.
The concern is that without a strong hold on the parliament, the ruling party may not have the political will to continue with much needed economic reforms, which could lead to some setbacks such as delays in infrastructure projects.
ôThis worst-ever performance (of the ruling party) is a shock to everyone on the street, including the opposition parties that never would have expected to win more than one-third of the parliament seats,ö Citi says.
The ruling coalition party has won 140 or 63.06% of 222 total parliament seats, the smallest since 1969's 66% win, Citi says. Analysts have attributed the surprise turn of events to the highly underestimated dissatisfaction over higher consumer prices and rising cost of living.
ôGiven that the outcome was totally unexpected, the market could take it very negatively,ö Citi says. ôThe transitions or handover to the opposition for four states could create uncertainties on contracts and timing on the implementation of projects. In an uncertain environment, equity risk premiums are likely to go up.ö
Citi notes that MalaysiaÆs equity risk premium, which the bank already raised in October, could rise further in the near term.
Construction stocks are expected to be among the hardest hit in the event of delays in the rollout of contracts.
ôNew property projects would have to pass the acid test of the new opposition government,ö Citi says.
Citi expects ôpanic sell-downö to persist, but urges investors to pick up fundamentally good stocks in the plantation and telecommunication sectors. The firm advises investors to stay away from the cyclical property and construction sectors and high beta banks.
The election results have spooked MalaysiaÆs stockmarket, which ended down 9.5% on March 10, with the benchmark Kuala Lumpur Composite Index shedding $30 billion in market capitalisation. The market has since recovered some of its losses on what analysts described as a technical rebound, but continues to be on shaky ground.
The concern is that without a strong hold on the parliament, the ruling party may not have the political will to continue with much needed economic reforms, which could lead to some setbacks such as delays in infrastructure projects.
ôThis worst-ever performance (of the ruling party) is a shock to everyone on the street, including the opposition parties that never would have expected to win more than one-third of the parliament seats,ö Citi says.
The ruling coalition party has won 140 or 63.06% of 222 total parliament seats, the smallest since 1969's 66% win, Citi says. Analysts have attributed the surprise turn of events to the highly underestimated dissatisfaction over higher consumer prices and rising cost of living.
ôGiven that the outcome was totally unexpected, the market could take it very negatively,ö Citi says. ôThe transitions or handover to the opposition for four states could create uncertainties on contracts and timing on the implementation of projects. In an uncertain environment, equity risk premiums are likely to go up.ö
Citi notes that MalaysiaÆs equity risk premium, which the bank already raised in October, could rise further in the near term.
Construction stocks are expected to be among the hardest hit in the event of delays in the rollout of contracts.
ôNew property projects would have to pass the acid test of the new opposition government,ö Citi says.
Citi expects ôpanic sell-downö to persist, but urges investors to pick up fundamentally good stocks in the plantation and telecommunication sectors. The firm advises investors to stay away from the cyclical property and construction sectors and high beta banks.
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