Equities and bond markets to come under scrutiny
Fund managers expect short-term uncertainty in capital markets
Nomura Securities Malaysia head of investment banking (Malaysia) executive director Yip Kit Weng:
What is apparent is a shift in voter sentiment and it was a very close contest.
Both domestic and international institutional investors we regularly deal with have very high regard for the resilience of the Malaysian economy. Even with the recent political issues, volatility in oil prices and weakening of the ringgit, GDP growth was maintained and Malaysia is seen by them as a stable economy.
In the short term, there will be uncertainty in the capital markets – be it in equities, bonds or currencies – until uncertainties dissipate through clear and transparent policy formulation.
The other question that springs from the outcome of this contest is whether it would affect Malaysia’s sovereign ratings.
However, Malaysians have decided, and we now have to give the winning team a chance to build a better Malaysia.
Philips Capital Asset Management chief investment officer Ang Kok Heng:
Investors would need time to digest and see the transition. As long as there is a smooth transition, investors are alright.
Generally all businesses and investors want to see stability. Both sides are pro-business and pro-development.
The only question now is people want to see stability and smooth running of the government whatever the outcome.
On the long term, the Pakatan Harapan-led government is expected to be a more efficient and transparent in the way they manage public finances.
In the immediate term, if they do away with the goods and services tax (GST) as promised within 100 days, they have to look at how to offset the short fall.
The government collects RM40bil from GST, which would need to be replaced. The rising oil price will help the government with their expenditure.
In the immediate term, fears of ringgit weakening would persist on the grounds of the new government incurring a potentially higher Budget deficit.
Ericsenz Capital Pte Ltd chief executive officer Anthony Siau :
The fact that the Opposition has made huge inroads is something which caught the market by surprise. For the short-term, the market will continue to be uncertain – meaning more volatility.
In terms of downside, yes the market will fall on a knee jerk basis. However, the market has also fallen a lot over the last few weeks leading up to the elections, meaning that in a way, the market was half factoring in the Opposition winning more seats.
We will let the storm calm first, and then I think it is a good time to start to search for value in the market.
On the positive side, the political uncertainty is now gone. Investors will start to focus back on the economy and its fundamentals.
Economy wise, I don’t think the results are an indication of the people being unhappy with Barisan Nasional’s policies, for example the GST. I think it is more of the people wanting some form of check and balance. Check and balance is always good. I feel this will lead to more efficiencies and transparency, which is ultimately better for our stock market in the long run.
UOB KayHian head of research Vincent Khoo:
Expect a knee jerk reaction for both equity and ringgit with the Pakatan Harapan (PH) win. Consensus is for a downside reaction for both equity and ringgit, but hopefully PH can calm markets by reinforcing generally business-friendly policies.
But the two-day holiday hopefully will be able to calm the markets by quickly reinforcing business-friendly policies.
Going forward, there would be high expectations for better transparency.
Hopefully, (there would) be longer term rein on the fiscal issues. It is certainly a new dawn for Malaysia.
Some of the structural issues may need time (years) to correct, but it will be a new beginning.
Sunway University Business School professor of economics Yeah Kim Leng:
I hope the transition and transfer of power will be smooth. If it is, Malaysia will be on a new trajectory.
Pakatan Harapan’s policies in the first 100 days will be critical as markets and foreign investors will need assurance that the negative impact of any major policy change is well mitigated. This includes those related to the GST.A reversion to Sales and Service Tax (SST) will mean a reduction of approximately RM20bil that will have to be offset by other sources such as higher petroleum dividend or a cutback in government spending.
Oanda APAC Head of Trading Stephen Innes:
International markets are watching Malaysia quite nervously. At press time, the results are too close for comfort.
Unfortunately for Malaysia, the emerging markets as a whole are also going through a capitulation now because of the stronger US dollar.
There would be knee jerk reaction based on the election results.
Malaysia assets could see depreciation over the short term because of the implications from this result. Investors would be looking for a leader who can unify the population.
My view is the political uncertainty would extend a little further. It should result in the ringgit trading weaker and possibly going towards the RM4 level against the dollar.
However, political risk tends to evaporate gradually over time. We would see the positives from Malaysia start emerging over time.
There would be negative reaction on equities, bond and ringgit as well.
It could see ringgit pushing up quite significantly against the dollar.
The ringgit should open weaker because of the results. This is the knee jerk shock reaction because of the upset win by the opposition. This could pressure the ringgit to trade closer to RM4 to the US dollar.
Fortress Capital chief executive officer Thomas Yong:
While policy risks will be the primary concern for investors with any new government, greater concerns have been over the fear of a hung-government or any social unrest following any surprise outcome.
A strong mandate, even when resulting in a change of government, is therefore not a negative to investor sentiments. We do not expect any significant near term effects on the Malaysian Ringgit outlook either.
Market sectors with high government policy dependence, on the other hand, will require reevaluation. Companies that have benefited from government contracts in the construction, services and oil & gas industries will inevitably experience selling pressure.