2013: A time to ‘turbulance’

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GE: Risk or opportunity?

The uncertainty surrounding the ‘yet-to-be-announced’ GE would result in Malaysia’s economy kicking off the year to a slow start with businesses likely holding back capital spending and hiring until they see a clearer picture of the outcome.

There have been a lot of talk around town that the upcom­ing 13th GE (GE13) would affect the local bourse and the market would rally, further affecting the minority shareholders. However, BizHive Weekly has not detected any strong correlation between broad equity market performance and the GE.

Only in 2004 was there a supposed ‘election rally’ as the following in­dices, namely FBM Kuala Lumpur Composite Index (FBM KLCI), FBM Top 100 Index (FBM100) and Bursa Malaysia Construction Index (KLCON), that witnessed positive returns from one-year prior to the election date.

Examining the market response after the election also yielded the same lack of correlation.

In fact, performance in the GE has no bearing on the market. This was evident by the good election result of the incumbent in 2004, but which was followed by negative market returns.

MIDF Amanah Investment Bank Bhd (MIDF Research) chief economist Anthony Dass however, further pointed out that some market commentators believed GE13 would be different this time around and local market perform­ance would momentarily decouple from the rest of the region.

He attributed the recent slug­gish market performance to the uncertainties surrounding the outcome of the upcoming election. The weak stock performance of the construction sector despite inces­sant positive news flow perhaps bore some truth to this claim.

“But we believe that investors may have over-emphasised on the election consequence and the likeliest of result is that the status quo remains. Hence, this presents an opportunity to investors who share a similar view and who have the risk tolerance,” he stated in a recent 2013 equity report.

The research firm expected the construction sector to realise its potential value after GE13 as its current undemanding valuation should be an attractive proposition for investors. Media sector would also be an indirect beneficiary to GE13 because it was all about news cycle refresh.

“Nevertheless, we do not totally discount the risk of an unexpected outcome to GE13. If that were to transpire, we would be surprised if the planned or even on-going governments projects might be renegotiated postponed or even scrapped off.

“However, we believe that the sanctity of contract will be honoured by any party which wins the election mandate,” Dass elaborated.

The negative repercussion of unilateral amendment or, worse still, cancellation of awarded projects would be tremendous especially from the view point of foreign investors. Besides, most of the on-going major infrastructure projects had been awarded on open-tender basis and some which required specialised skills.

“We believe that should there be any re-examination, it will be on future or planned projects,” he concluded.

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