KLCI rallies post-GE but uncertainties still loom

Business & Markets 2013
Written by Ho Ching-Ling & Shalini Kumar of theedgemalaysia.com
Tuesday, 07 May 2013 09:52
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KUALA LUMPUR: The FBM KLCI enjoyed a strong rally yesterday and
broke record levels once again following the ruling coalition’s election
victory.
But while the rally came as no surprise with the removal of election
uncertainties, lingering concerns over Malaysia’s fiscal health and the
position of Datuk Seri Najib Razak within Umno — following a less than
satisfactory win by the Barisan Nasional (BN), could still provide some
headwinds for the local bourse, said market observers.
The benchmark index broke the 1,800 level during early trading
yesterday, rising by 132 points to touch a record intra-day high of 1,826
points. Though paring some early gains, it still closed later in the day at
an all-time high of 1,752.02 points, up 57.25 points or 3.38% from last
Friday with 1.91 billion shares traded.
“Although BN failed to regain its [two-thirds] majority, the 132 out of 222 parliamentary seats won was still enough to ensure
the stable continuity in policies many were hoping for,” said an analyst.
“This victory rally was definitely expected considering that the election uncertainties are now gone. The political risks have
capped our market for a while now which is why the KLCI had underperformed most of its regional peers. Now that it has
been removed, the market should resume its uptrend,” he said.
Some of the biggest gainers yesterday included SapuraKENCANA PETROLEUM BHD [], which closed 30 sen or 13.11%
higher to a record high of RM3.45. UEM LAND HOLDINGS BHD [] was also up 34 sen or 12.88% at a two-year high of
RM2.98 while CIMB Group Holdings Bhd jumped 74 sen or 9.72% to close at RM8.35, a 20-month high.
But while investors are upbeat, one issue that could be a cause for concern is Malaysia’s fiscal health, considering that BN
has pledged to spend huge sums of money to boost infrastructure investments, public housing as well as stepping up social
welfare programmes in order to win over voters. With the election over, the ruling government now has to make good its
pledges.
Credit rating firms have long cautioned on Malaysia’s high public debt levels as well as huge subsidies and have previously
highlighted that rising public debt ratios “may eventually exert negative pressure on ratings”.
Fitch Ratings issued a statement yesterday and said it is “waiting for further clarity on the government’s fiscal policy and
economic policy programme following the elections”.
Note that on Nov 19, 2012 the firm wrote that “Malaysia’s public finances are a weakness relative to rating peers and offer
limited scope for counter-cyclical fiscal stimulus at the current rating level of A-/Stable”.
It also said that “the growing provision of guarantees to government-linked borrowers is concerning”.
“In the mid to long term, I think fiscal and macroeconomic issues will remain no matter which government is in power. The
government must find a way to fulfil the promises it has made and at the same time, find a way to boost the country’s revenue
even if it means introducing the goods and services tax (GST) at some point,” said Yeoh Keat Seng, a seasoned analyst and
fund manager at Kumpulan Sentiasa Cemerlang.
Another hot topic that is being debated, meanwhile, is the position of Najib as prime minister.
Reuters, quoting an anonymous official from Umno, of which Najib is currently chairman, reported yesterday that the current
prime minister could step down by the end of the year after his coalition failed to regain a two-thirds majority in its “worst-ever
general election performance”.
Analysts have already factored in Najib’s position potentially being challenged in Umno’s elections later this year but said it is
unlikely he will be removed.
“He will likely stay put as Umno chief and BN leader if he continues doing what he’s doing. BN was prepared for the
eventuality that they would not regain the two-thirds majority vote but they won 133 seats, which is more than what people
thought they would get. So, I think Najib should be able to stay put,” said Areca Capital Sdn Bhd chief executive officer Danny
Wong.
Whether or not yesterday’s rally was merely one-day euphoria, the overall sentiment among the investing community is that
the KLCI will continue to ride an uptrend to the year-end.
“Supporting the KLCI’s uptrend will essentially be greater clarity and stability, at the political and policy fronts, strong domestic
economics and corporate balance sheets, continuous corporate earnings growth, and the KLCI’s underperformance against
regional markets, for the second year running,” said Maybank Investment Bank in a report yesterday.