MALAYSIA’S stunning election results should only have a short-term negative impact on share prices, an asset management firm predicted.

Affin Hwang Asset Management director of equities strategy and advisory Gan Eng Peng said while a new government would bring uncertainties that foreign investors detest, the impact on Malaysia’s market will be limited due to strong domestic liquidity support.

“The street is overwhelmingly bearish if the opposition wins. We are on the contrary, bullish.

“Any new government will want to generate confidence for the market and overall population. This fading of uncertainty should bring investors back to the market.

“We think markets will end higher in less than a month than pre-election with this new government, barring unforeseen global macro overhang and if a smooth transition of power is achieved,” said Gan.

Looking a bit further out, he said Malaysia would be touted as a reformed player after a reset on 60 years of policies and on the back of a healthy economy.

He cited Thailand, the United States, and Italy as examples of short downtime in the markets after a major regime change.

“The Thai military coup of 2014 drove out foreign investors, but strong domestic liquidity boosted the market to a full recovery within six days.

“Similarly, the impact from Donald Trump winning the US presidency lasted just three hours. The unfavourable referendum for Italian prime minister Matteo Renzi only had a three-minute negative effect.”

Gan predicted the share market would contract by 5% to 8% in the next one to three days.

“Contractors, politically linked counters, and CIMB could take the brunt of the hit.

“Our Malaysian portfolios have currently 12%-15% exposure in such stocks with the largest weights in CIMB, Gamuda, and IJM.”

He said the Malaysian economy remained healthy, and recommended that investors go for politically neutral businesses.

The consumer sector will be a major beneficiary of the removal of the goods and services tax, fuel subsidies, and minimum wage adjustment that will put more money in consumers’ pockets.

These policies, however, will be unpopular with the bond market that is 40% to 50% foreign-funded.

“The ringgit might take a hit because of that.”

This would be short-term as the new government’s reform policies will rejuvenate the market, he said. – May 10, 2018.