Post-GE Market Stocks to fall if PR wins

Business & Markets 2013
Written by Ho Wah Foon of theedgemalaysia.com
Friday, 26 April 2013 14:49
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KUALA LUMPUR: The stock market is expected to fall if the opposition
coalition Pakatan Rakyat (PR), which has no track record in running the
Federal Government, wins the coming general election and takes over
control of Putrajaya.
It will be worse for the market if either PR or the incumbent Barisan
Nasional (BN) wins with a very slim majority, or if there is a hung
Parliament, as uncertainty will linger on until a new government is
formed.
These views are prevalent among fund managers, analysts and dealers
when theedgemalaysia.com did a cursory survey of market players this
week.
Ang Kok Heng, who manages RM1.4 billion worth of funds for Philips
Capital Management Sdn Bhd, said: “If PR wins, the market will
definitely fall as markets do not like uncertainty. This will go on until the
dust settles and PR starts managing the country.”
He added: “Most in the market are now betting that the BN will win. If it
is otherwise, the market will fall. But we are prepared to buy up
beaten-down stocks that we like. Our strategy is to buy low and sell
high.”
While seeing value in banking, oil/gas sectors now, Ang said after the
election results are announced, investors should go for short-term
technical trading.
“When quality stocks plunge, we will buy. You can’t select sectors when the whole market plunges. You have to go by
stocks,” he advised.
Credit Suisse’s analyst Tan Ting Ming, in her recent research note, opined: “If PR wins, the market could see a knee-jerk
reaction as equity investors dislike change and uncertainties. Without a track record, there will be political and economic
uncertainties if PR takes over.”
Under PR rule, the market could expect monopolies and concessions to come under review, and Tenaga Nasional may suffer
a hit as PR has stated in its manifesto it wants to cut electricity tariffs, she said.
And REITs, consumer staples and telcos will likely outperform, according to Tan.
She said if PR implements its manifestos, Malaysia’s budget deficit could worsen as PR may increase subsidies and
hand-outs.
A senior institutional sales manager, who declined to be named, shares the views of Ang and Tan.
She said: “If BN wins, the market will rally. If PR wins, the market will definitely fall. But under PR, if the question of who
becomes the next prime minister is settled fast, the market will calm down. Forming a cabinet promptly will also instil
confidence.”
Under PR rule, counters linked to caretaker Prime Minister Datuk Seri Najib Razak such as CIMB Holdings, PNB-controlled
and Khazanah-linked shares are likely to lead the decline.
And companies which have been awarded the BN caretaker government’s contracts after the dissolution of Parliament may
be hit, as they may not be recognised by the new government.
In fact Najib, who is leading BN in this most-fiercely contested general election in the country’s history, was one of the first
political leaders to talk about post-election market reactions.
In a recent interview with Bloomberg, he said: “The market, the currency (ringgit) will take a very sharp decline if the
opposition wins.”
Bloomberg reported that companies controlled by T. Ananda Krishnan and Syed Mokhtar Al-Bukhary may face government
scrutiny should PR win.
Companies linked to these two billionaires include Astro, DRB-Hicom, Maxis, MMC, Padiberas and Tradewinds.
But the worst for the market is likely to come if the election outcome shows a very close win for either BN or PR, which could
result in a hung Parliament as the balance of power is almost equal or equal.
As there are 222 parliamentary seats up for grabs, BN or PR will have to win 112 seats to claim simple victory, and many
more to claim absolute win.
A win by either group with a very slim majority is likely to plunge Malaysia into prolonged political crisis, as the two rival
groups are likely to scramble for power by enticing elected MPs to cross over to their camps.
In the unlikely event that there is no leader who can command majority support, the King may have to step in to appoint a
caretaker leader.
“A hung parliament would be the worst possible outcome of the election. If this happens, large domestic investors may hold
on to their equities. If they are negative, trim their portfolio by 10-20% and short index futures,” advised an investment banker.
Many political analysts believe that if BN wins narrowly, Najib’s leadership could be challenged at the next general assembly
of his party UMNO. And this will add more political instability.
As most in the market are now betting that the BN could win by a majority of one to three percent, anything beyond this
margin will be “a bonus for the market”, said market players.
As long as BN wins, CONSTRUCTION [] stocks such as Gamuda and IJM, and gaming stocks could still see a relief rally.
UEM Land should continue to thrive while business will be as usual for most banks, said Tan.
While many see the market fall if PR wins or if there is a draw, they do not rule out the possibility that the stock market could
rebound quickly if uncertainty could be removed promptly.
While foreign funds are lurking ahead of the general election, pushing the benchmark FBM KLCI to new record highs, there
are also pools of local funds and cash-rich investors who are waiting to make a kill.