Right on cue, local and foreign investors started dumping their shares when the bell rang while the ringgit extended a week-long retreat to open lower today. Selloffs during the morning session saw the FBM KLCI falling as much as 21.31 points to the day’s low of 1,427.75 at one point.
However, by the end of the trading session, the index had pared most of its early losses and closed a mere 0.09% or 1.36 points lower to end at its intraday high of 1,447.96.
At the start of the day, the media reported that the Perikatan Nasional (PN) coalition, comprising Bersatu and PAS, led by former prime minister Muhyiddin Yassin was in the driving seat to form the next government.
PAS’ strong showing in Saturday’s election appeared to have caused stocks related to gaming and breweries to slump. The Islamist party had previously called for the implementation of shariah law in the country.
Shares of casino and resort operator Genting Malaysia Bhd plunged as much as 11%, the most in more than two years while brewers including Heineken Malaysia Bhd and Carlsberg Brewery Malaysia Bhd also fell.
However, by late morning, media reports started appearing that the Pakatan Harapan (PH) coalition led by Anwar Ibrahim would be holding talks with Barisan Nasional (BN) leaders to form the next government.
It soon became clear it was more than just speculation after it was officially confirmed PH and BN were joining hands to form the new state government in Perak.
The question on many investors’ minds was whether news of the potential PH-BN partnership was the catalyst for the rebound on the FBM KLCI today?
Several market research analysts that FMT Business contacted were reluctant to comment on whether the secular PH-BN grouping was preferred by investors to the PN coalition. “It’s very sensitive, so no comment,” said one.
Rakuten Trade vice-president of equity research Thong Pak Leng said so long as there is political uncertainty, the markets will remain volatile. “Foreign investors want political stability,” he told FMT Business.
“As we enter into a new normal within the political scene, local equities may experience greater volatility and uncertainty until a new government is formed,” he said, adding for the week, he expects the FBM KLCI to trend within the range of 1,430-1,450.
MIDF head of research Imran Yusof said the market volatility is just a short-term knee-jerk reaction. “Once a government is formed, external factors such as US Fed pivot may come back to the fore,” he told FMT Business.
RHB analyst Alexander Chia said the outcome of the election constitutes a worst-case scenario for the markets. “With investor sentiments likely to remain clouded, depending on the duration of the power vacuum, (it is) the quality of the Cabinet members, and the parliamentary majority of the eventual government that will determine its ability to institute reform.”
“The strong electoral performance by the PN coalition was a surprise and we expect regulatory risks to spike higher especially for the gaming, brewery and tobacco sectors,” he told Bloomberg.
Aletheia Capital analyst Nirgunan Tiruchelvam said a hung Parliament could lead to a lot of horse-trading but once the shape of a coalition becomes clearer, market sentiment could change dramatically toward Malaysia.
“Still, the fundamental investment thesis toward Malaysia is quite clear, irrespective of the coalition. There are three sectors to focus on, which include commodities, as Malaysia is a leading producer of rubber, palm oil, and tin,” he told Bloomberg.
Next year could also be the year of Southeast Asian travel and companies that are exposed to travel and tourism could see strong investments, he added.
“Consumer companies like food and beverage producers that are able to ride the recovery as people go back to normal activity could also do very well.”
Thankfully, the uncertainty clouding Malaysia’s political landscape, and the capital markets, is expected to clear very soon.
The King will make a decision on which grouping will lead the new government as the coalitions of political parties have until 2pm tomorrow to provide evidence of electoral support and their respective candidate for prime minister.