Analysts cut end-2022 targets for FBM KLCI

With no bloc obtaining a simple majority in GE15, the market is expected to drift until a new government is formed

KUALA LUMPUR: Stock market analysts have cut their FTSE Bursa Malaysia KLCI (FBM KLCI) targets for end-2022 to as low as 1,450 points in the absence of any coalition securing a simple majority in the justconcluded 15th general election (GE15).

Kenanga Research said Malaysia will only usher in another joint government or minority government, thus making it extremely challenging for new policy initiatives and reforms to be pushed through.

In a research note yesterday, it said a knee-jerk market selloff is expected due to the country having at best a joint government. That is assuming a deal could be struck between two or more coalitions to form a joint government.

“During late-February 2020 in the aftermath of the ‘Sheraton Move’ that brought down the Pakatan Harapan (PH) government, leaving the country without a functioning government and a prime minister, the FBM KLCI fell as much as 4.6% from 1,537 points in mid-February to a low of 1,467 points on March 2, 2020,” it added.

Hence, Kenanga Research cut its end2022 KLCI target by 3% to 1,450 points from 1,500 points to reflect the new reality.

“Nonetheless, we continue to advocate investors to seek refuge in domesticallydriven sectors including banks, telecommunication companies (telcos), automotive makers/distributors and midmarket retailers amid rising external headwinds. We believe the government of the day post-GE15 will continue to be highly supportive of domestic consumption,” it added.

Meanwhile, CGS-CIMB Securities also lowered its KLCI target for end-2022 to 1,484 points from 1,556 points previously to reflect short-term political uncertainties.

It said the market will likely react negatively due to, among other reasons, GE15’s failure to resolve Malaysia’s political instability which may even lead to more uncertainty.

Further, the brokerage said, the market may have partially priced in a win for the incumbent Barisan Nasional (BN) and investors may have concerns over the strong showing by Islamist party PAS.

“There could also be concerns, similar to those in the past, of the fragility of potential alliances due to their differing ideologies.

“Taking a leaf from history, when the opposition parties did well against BN in 2008 and 2018, the FBM KLCI fell 3% and 6% one month after GE12 and GE14, respectively,” it said.

CGS-CIMB said if a Perikatan Nasionalled (PN) government comes into power, it expects potential negative share price reactions for banking, gaming, construction and brewery sectors.

If a PH-led government is formed, it could be negative for the telco sector, it said.

However, the manifestos of both potential governments are friendly to consumers, pharmaceutical and infrastructure spending in Sarawak, it said.

“We expect significant stock market volatility. In the longer term, we will be positive if the new government takes steps towards institutional and political reforms,” it added.

In GE15, the PH coalition emerged the biggest winner with 82 seats (a slight reduction from 90 immediately before the dissolution of Parliament), followed by PN with 73 seats (a sharp increase from 46 immediately previously), BN with 30 seats (from 43 previously) and Sarawak-based Gabungan Parti Sarawak (GPS) with 22 seats (from 19 seats previously).

At 11.02am, the KLCI was down 9.5 points to 1,439.82 from Thursday’s 1,449.32. It closed at 1,447.96 points, down 1.36 points.