Analysts anticipate temporary market volatility post-GE14

Investors will exit some equities due to uncertainties over the new govt’s policies, says analyst


The financial market is expected to experience temporarily volatility this week following the unexpected 14th General Election (GE14) results.

Affin Hwang Asset Management Bhd equities strategy and advisory director Gan Eng Peng said the stock market is expected to open lower as investors would exit some equities due to uncertainties over the new government’s policies.

“All markets dislike uncertainties and we expect this could lead to bigger discounts with the adjusting factor being lower share prices overall.

“This would be the immediate reaction as the sell-off will be broadbased with 5%-8% immediate downside for the country’s benchmark stock index within the next one to three days, after it (the market) corrected by 3.5% pre-election since it reached a record high in April,” he said.

Gan said politically linked stocks are expected to see the most instability following the fall from power of Barisan Nasional.

“Stocks, particularly the contractors and politically linked companies, are some of the counters that could face the brunt of selling.

“Malaysian portfolios currently have 12%-15% exposure to such stocks with the largest weights in companies such as CIMB Group Holdings Bhd, Gamuda Bhd and IJM Corp Bhd,” he said.

Gan expects the ringgit to rebound in less than a month after the government transition is concluded.

“Any new government would want to generate confidence in the market and overall population. The fading of the uncertainties should bring investors back to the market.

“Ultimately, we think markets will end up higher in less than a month with this new government, barring any unforeseen global macro overhang and a smooth transition of power,” he said.

Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said the ringgit is expected to face volatility.

“The additional overlay in election results might weaken the ringgit as fresh intentions such as the getting rid of the Goods and Services Tax may create some apprehensions for the markets,” he said.

Moody’s Investors Service Inc financial institutions group VP and senior analyst Simon Chen said some campaign promises could have a negative impact on the market sentiment and trigger volatility in the financial markets.

“These dynamics will take time to unfold and a lot will depend on what the new government unveils in the coming weeks and months.

“If investor sentiment worsens materially, we will see increasing risk of capital outflows and a further weakening of the ringgit, which could in turn dampen private sector consumption and operating conditions for banks in Malaysia,” he said.

Rakuten Trade Sdn Bhd VP research Vincent Lau said the impact of the government change will be clearer after Pakatan Harapan announces its Cabinet members.

“The two-day public holiday was a good move for the investing public to digest the new government and what it is promising. The market will certainly succumb to some knee-jerk reactions and volatility in the near term,” he said.