Ahead of Malaysia polls, analysts staying neutral on election-themed stocks

THERE are still 16 months to go before Malaysia needs to have its next general election, but many observers are expecting the country to head to the ballot boxes as soon as the second half of this year.

And unlike the build-up to previous national polls, analysts are taking a neutral stance on their election-themed stock picks.

Vincent Khoo, the head of research in UOB Kay Hian Malaysia, said the upcoming election is expected to be “neutral to moderately positive” for Malaysian equities, given the consensus view that the Barisan Nasional coalition – under the leadership of United Malays National Organisation - will see a resounding victory and regain a sizeable number of parliament seats that it lost in 2018.

Case in point was the recent Johor state election in March, when BN secured 40 of the 56 seats contested. This landslide win came just months after the coalition’s success at the Malacca state election.

Based on these performances, Khoo noted that investors would traditionally speculate on companies that could benefit from a BN-led government’s fiscal spending, such as on mega construction or e-government projects.

“However, we expect the excitement from the upcoming election to be less pronounced given the federal government’s tighter finances,” he told The Business Times.

The Malaysian government’s coffers are drying out after rolling out a series of Covid-related support measures over the past 2 years - totalling some RM380 billion (S$119.7 billion) to the country’s lower-income groups.

Peter Lim, chief research officer of Trident Analytics, noted that construction counters - which have typically been seen as election stocks - will not attract the same attention for the next general election, as he feels it is “unlikely” for the government to announce any new major developments any time soon.

“For the ongoing developments, such as mass rapid transit projects and the Tun Razak Exchange, have already been announced and executed. Most of the contracts were also awarded in the past two years, and generally the market lacks fresh leads,” he added.

Lim advised investors to focus on counters that have the potential to replenish the government’s coffers, such as oil and gas as well as crude palm oil, which are currently seeing high prices.

An analyst, who requested not to be named, said the timing of the general election will be the key on stock picks.

“The incumbent faction – led by Umno president Ahmad Zahid Hamidi – is pushing for the election to be held as soon as possible, riding on the strong support after the Johor and Malacca elections. The younger faction – led by the prime minister - aims to have the election next year to have more time to gain the public’s support,” he explained.

He noted, however, that PM Ismail, who took over the top job in August last year, has yet to outline a clear direction in terms of leading Malaysia’s economy, which is proving tricky for investors in naming their stock picks.

Ivy Ng, CGS-CIMB Securities head of Malaysia research, said that after the last election in 2018 saw Barisan Nasional losing the majority vote for the first time in the party’s history, investors are now taking a cautious approach in their election picks due to the political uncertainties.

“The markets will be correcting itself ahead of the election. Construction and telco counters - typically seen as election stocks -will see their prices fluctuate before and after the election,” she said.