Trading activity in Malaysia’s stock market has been muted as we head towards polling day on Saturday.
This is as the uncertainty over the outcome of the 15th general election (GE15) in Malaysia posed downside risks to the stock market.
In the past, there would usually be buying interest in politically-linked stocks prior to the election.
But with a total of 945 candidates being accepted to contest the 222 parliamentary seats, the most candidates in the Malaysia’s history book, there is no clear winner for the upcoming election.
In the previous election, the Pakatan Harapan (PH) coalition succeeded in staging the biggest upset in Malaysia’s electoral history when it led the first change of government by defeating the Barisan Nasional (BN) coalition.
This time around, there are three major coalitions; namely BN, Perikatan Nasional and PH.
There is also another Malay-coalition, Gerakan Tanah Air (GTA), led by Malaysia’s longest and oldest Prime Minister, Tun Dr Mahathir Mohamad.
If you are confused reading about the different coalitions, you are not the only one.
The fragmented and foggy political landscape remains a downside risk to investors as the outlook of the development of the country could be very different under five possible prime ministerial candidates.
The election outcome could also spring another surprise given that the age for voting has been lowered to 18, from 21 previously.
Biggest risk: No single party commands a majority to form a government
In the past, investors look to the election results to see if a more conservative or progressive party would win the election.
Factors such as good governance and clamping down on corruption, as well as investment-friendly policies, are priorities for investors.
However, most investors including myself, are more concerned on the result that could lead to a hung Parliament – where no single coalition could command a majority to form a government.
This result would lead to more uncertainty than what we have had prior to GE15 with horse-trading abounding in negotiations among the different coalition parties.
Politically-linked stocks to see more trading activity
While market sentiment could still be swayed by many external headwinds, politically-linked stocks are likely to see more trading activity once the election outcome is certain.
Among some of the politically-linked stocks include plantation firm Matang Berhad (KLSE: 0189), manufacturer of leather upholstery for cars, Pecca Group Berhad (KLSE: 5271), and Malaysia’s largest English media company Star Media Group Bhd (KLSE: 6084) – which was owned through the Malaysian Chinese Association (MCA), a political party that is part of the BN coalition.
MCA has a 17.15%-stake in Matang and was a substantial shareholder of Pecca Group with 6.33% indirect stake via its investment vehicle, Huaren Holdings Sdn Bhd. MCA has a direct and indirect stake of 43.23% and 0.675% respectively in Star Media.
Another media stock that is linked to BN is Media Prima Bhd (KLSE: 4502), which is linked to Datuk Seri Johari Abdul Ghani, a politician with the BN coalition and the former second finance minister for Malaysia.
Aside from that, property developer Jiankun International Berhad (KLSE: 8923), is perceived as a BN stock after former deputy prime minister and current UMNO’s party president, Datuk Seri Ahmad Zahid Hamidi’s son-in-law, Datuk Saiful Nizam Mohd Yusoff, emerged as a substantial shareholder with an 8.58% interest.
In 2018 during GE14, we witnessed some sharp declines in the stocks that are linked to BN following the change of government for the first time in Malaysia’s history during the first few days of the market after the election.
Politics will play a prominent role in Malaysia’s stock market recovery
Overall, the Malaysia stock market has lagged behind peers, including the Singapore market, over the last five years amid political uncertainty and revelations of corruption, such as the 1MDB saga.
Recall that while Malaysia saw the first change of government in 2018 during GE14, the PH coalition only lasted for two years as political in-fighting led to a shift in alliance.
This has resulted in three different prime ministers in the last four years with Tun Dr Mahathir Mohamad, Tan Sri Muhyiddin Yassin and Datuk Seri Ismail Sabri Yaakob, who is also the current caretaker prime minister.
Will GE15 change the narrative ahead? Investors don’t have to wait too long to find out but regardless of the outcome, expect to see some increase in trading activity come Monday.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.