Malaysia assets may extend rally as impasse ends, analysts say

Investors will be watching the announcement of Malaysia’s cabinet line-up and whether the new “unity government” can provide political stability following the appointment of Anwar Ibrahim as the country’s new prime minister. 

Markets cheered the news on Thursday, sending Malaysian stocks to their best gain in over two years. Meanwhile, the ringgit had its best day since 2016.

Analysts said the relief rally could continue as a key uncertainty in the market has been removed.  

Here is what analysts are saying:

Joshua Ng, analyst at Kenanga Research at 

After the initial euphoria, we believe the market will assess the effectiveness of the ‘unity’ government, which is unprecedented in Malaysia. 

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.

We raise our end-2022 FBM KLCI target back to 1,500 points from 1,450 points to reflect the resolution of the political deadlock. We continue to advocate investors to seek refuge in domestically-driven sectors including banks, telcos, auto makers/distributors, mid-market retailers and construction, amidst rising external headwinds. 

Alexander Chia, analyst at RHB

We expect 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. 

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.

Ivy Ng, head of equity research at CGS-CIMB Securities 

We raise our end-2022F KLCI target to 1,602 points from 1,484 points, based on 13.8x forward P/E. If the political instability concerns ease over time, there is potential for KLCI to re-rate to its pre-GE14 valuations of 16.5x, which is close to its 3-year average mean P/E of 16x and values it at 1,855 points. 

Our picks following the appointment of the new PM are consumers, banks, gaming and brewers. Construction, telco, utilities and property sectors could also do well in a more stable political environment.

The market will be closely watching the announcement of the cabinet lineup, which we estimate could take 7-10 days, first sitting in Parliament on Dec. 19, tabling of provisional and full Budget 2023, among other things.

Sailesh K Jha, group chief economist and head of market research at RHB

In foreign exchange, the move down in USD/MYR below 4.50 yesterday was massive and we would be cautious in believing that these prints below 4.50 are sustainable. We believe that USD/MYR could trade back up to around 4.60 by year-end. Our 1H23 USD/MYR forecast of 4.70-4.80 remains unchanged for the time being. – BLOOMBERG