Chaos have greater effect on Malaysian equities, not change, say analysts

Last week, Nomura Equity Research said uncertainties surrounding the next general election will influence the Malaysian equities market in the second half of next year. – File pic

KUALA LUMPUR, Dec 25 – Uncertainties, not political change, will give a greater impact on the stock market after the 13th general election, say analysts.

Senior fellow of Socio-Economic & Environmental Research Institute (SERI), Dr Michael Lim Mah Hui warned that any chaotic environment, sensitive disputes and negative sentiments will have a much more serious impact compared to the prospect of Pakatan Rakyat (PR) taking over Putrajaya.

“I don’t agree that the market will crash if there is any power shifts, or if the election results do not favour the current government,” Lim told The Malaysian Insider.

“If the new government is cleaner, it will be better for the stock market. The main issue instead is to avoid uncertainties.”

Last week, Nomura Equity Research said uncertainties surrounding the next general election will influence the Malaysian equities market in the second half of next year.

On the other hand, Lim stressed that investors are more likely to be frightened by fear-mongering extremists who manipulate sensitive issues like race and religion.

He disagreed when asked whether the rallies and demonstrations organised by PR ahead of the polls will impact investors.

“Demonstrations and chaos are two different things. Chaos scares investors away, but peaceful demonstrations do not,” he explained.

Looking at the performance of PR states Selangor, Penang, Kedah and Kelantan, Lim stressed that PR will make an easy transition to federal administration.

“A cleaner government will bring a positive effect to the stock market,” Lim added.

Lim also urged the government to move fast in addressing illicit money outflow revealed by the latest report by US-based financial watchdog Global Financial Integrity (GFI).

“It is better for them to address this matter rather than speculating on a market collapse.”

In its latest report, GFI placed Malaysia as the second-worst developing country in illicit money outflow for 2010, and the only country among the bottom end of the list that saw its outflow double between 2009 and 2010.

Illicit money outflow had increased 111 per cent from US$30.4 billion (RM94.27 billion) in 2009 to US$64.38 billion (RM199.58 billion) in 2010.

Meanwhile, RAM Holdings Bhd Chief Economist Dr Yeah Kim Leng shared Lim’s opinion, predicting that Malaysia’s equities market is mature enough and will return to business as usual despite a power shift in Putrajaya after the polls.

“It depends on the new administration in power, it will determine the direction of the market either for better or worse,” said Yeah to The Malaysian Insider.

Apart from cautioning about uncertainties, Nomura Research also ranked Malaysia’s performance next year as “underweight” — a status given to markets which are expected to underperform — together with other Southeast Asian countries except for Singapore.

“We think that concerns about the outcome of the election will keep the market on the backfoot,” Nomura’s research analyst for Asian strategy, Michael Kurtz said.

“Malaysia is one of those markets ... where the shape of the government, the reform orientation, and fiscal intention of the government matter a lot in economical performance.”

According to Nomura, the persistent delaying of the election and a perception of political instability had caused an overhang in the Malaysian stock market, causing extreme volatility in equities prices.