The stock market and the Ringgit reacted positively yesterday as the nation saw the appointment of Datuk Seri Anwar Ibrahim as Prime Minister. And more is to come, say analysts, though with some caution thrown into the air.

The stock market saw brisk dealings, pushing the key index rising by 4.04% to a near three-month high on yesterday. The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) ended the day at 1,501.88, up 58.38 from the day before.

The ringgit climbed 1.8 per cent to its highest in over two months versus the US dollar on Thursday. At 6 pm, the local note gained 815 percentage points to 4.4910/5000 against the greenback from Wednesday’s close of 4.5725/5775.

The local stock market can expect more favourable action in days to come, though investors will be keeping a keen eye on how the unity government takes shape now that the Pakatan Harapan chairman Anwar was sworn in as Malaysia’s 10th PM at Istana Negara yesterday.

The elevation of the former deputy prime minister and opposition leader came after the 15th General Election (GE15) on Saturday returned a hung parliament, with the two largest winning blocks – Pakatan Harapan (PH) led by Anwar and Perikatan Nasional (PN) led by Tan Sri Muhyiddin Yassin – not mustering enough seats to claim a simple majority in the 222-seat Parliament.
 
On what to expect for the local stock market, RHB Research analyst Alexander Chia said: “Bursa Malaysia will continue to trade higher in a relief rally after staring at an abyss that was a much starker and less inclusive political alternative.”

“Investors will be looking closely if the Government will be able to offer political stability and policy continuity,” he wrote in a report released in late evening yesterday.

Kenanga Research believes the new administration will continue to be pro-business and provide adequate protection to local industries.

“We expect the continuation of prevailing policy inclinations including pro-business, protectionism for local industries, business-as-usual for government-linked companies, strong fiscal support to the economy with cash handouts, fuel and food subsidies, and pump-priming,” it said in a strategy note released mid-day yesterday.

It said it continued to advocate investors to seek refuge in banks, telcos, auto makers/distributors, mid-market retailers and construction as it believed that the “unity” government will be supportive of domestic consumption.

In a report released late yesterday evening, United Overseas Bank Ltd (UOB) Research said the next event to watch for will be the Cabinet line-up and resuming Parliament to re-table Budget 2021.

“Domestic catalysts for MYR include political resolution that paves the way for pro-growth policies and domestic reforms, and further OPR hikes,” it said.

In his maiden press conference at around 9pm yesterday, Anwar said that Parliament will be convened on Dec 19.

RHB Research expects the relief rally to be extended as equities play catch up to build on the recent tentative shift in investor sentiment on the back of rising hopes that the pace of monetary tightening will begin to ease and as the market looks ahead to a more pragmatic approach by China’s Government to contain COVID-19.

“In the short-term however, we caution investors not to get too carried away, especially after the initial euphoria. The new unity Government needs to prove its ability to work together as a team, something unimaginable just a week ago. We think subsidy and fiscal reforms will be the acid test.

“The presence of the Borneo bloc in the new administration will be positive for infrastructure programmes in East Malaysia. Another spike in markets should invite some short-term profit taking but further out, investors ought to re-focus on fundamentals with a preference for large-cap value stocks,” according to the local equity research outfit.

In a separate report. RHB group chief economist and & market research head Dr Sailesh K Jha said that its top asset class to invest in Malaysia was the local currency government bond market.

Its asset allocation view to overweight bonds, market weight equities, underweight cash in Malaysia has been in place since April 4, 2022, he added.

“We continue to recommend to extend duration in the local currency government bond market, with our average MGS 10YR yield 1H23 forecast of 4.0-4.30%, followed by 3.90-4.20% in 2H23 remaining unchanged. The balance of risks to these 2023 forecasts are tilted towards lower yields,” he said.

RHB Research expects Budget 2023 to be passed in the next one to two months, with limited significant changes relative to what was announced in October. – TMR