Research houses optimistic on economic outlook after state polls

 

The government should focus on expediting its planned reforms to boost the local economy following the concluded state elections, said research houses. (AP pic)

PETALING JAYA: The recently concluded elections in six states have not changed Malaysia’s balance of power, and may have positive impacts on the economy, said research houses.

Despite a decrease in total seats held by Pakatan Harapan (PH) and its partners across the six states, the coalition managed to maintain substantial majorities of 86%, 73%, and 61% in Negeri Sembilan, Penang, and Selangor respectively, they remarked.

CGS-CIMB said the elections served as an endorsement of the unity government led by Prime Minister Anwar Ibrahim.

The status quo outcome, it noted, offers genuine optimism for consistent policy direction and continuation throughout the federal government’s remaining four-year tenure. This, the report highlighted, serves as a long-awaited and significant stimulus for the market.

“While these elections do not impact Parliament, we believe they pave the way for the prime minister to focus on much-needed medium-term reforms and policies, something that has been noticeably absent since the Barisan Nasional coalition lost power in 2018,” it said.

Nonetheless, it has now become imperative for the government to undertake critical macro-level reforms, such as fiscal consolidation, expansion of growth catalysts, and the enhancement of initiatives aimed at stimulating investments.

“We keep our year-end FTSE Bursa Malaysia KLCI (FBM KLCI) target of 1,610 points, with a preference for domestic-driven sectors such as banking, construction, property, and conglomerates, among others,” it said.

Similarly, Hong Leong Investment Bank Bhd said the status quo outcome of the state elections is not expected to have a direct bearing at the federal level.

However, a knee-jerk reaction on the local bourse, especially for brewers and gaming stocks, is possible as investors digest the shift in voter base towards a more conservative stance.

“Alongside results season jitters, we could see some market weakness in August. However, there might be an opportunity (for traders) to accumulate (stocks), riding on the local bourse’s envisioned recovery towards the fourth quarter of 2023.

“We maintain our FBM KLCI target at 1,530 points,” the research house noted.

Expediting key initiatives

Meanwhile, Kenanga Research said it is mildly positive on the election outcome as the ruling government succeeded in retaining control of Selangor, Penang and Negeri Sembilan, albeit with an eroded majority.

“We believe the prime minister will continue to muster support from the existing partners of the unity government.

“Also, we believe the government will expedite initiatives that will address investors’ concern over the nation’s long-term fiscal sustainability, which will boost the local stock market’s appeal,” it said.

Kenanga also expects the government to roll out its planned targeted fuel subsidy scheme – be it in the form of a cash subsidy to the low-income group, or discounts offered to eligible individuals at petrol stations.

The savings from subsidy rationalisation, it said, would then be put to more productive uses, such as economic development, public infrastructure spending, and investment in human capital.

“In terms of tax reform, we believe the reintroduction of some form of consumption tax, presumably at a rate that is not too burdensome to consumers, will be critical.

“This will help to broaden the government’s tax revenue base, giving it room to cut the personal tax rate to attract and retain talent and corporate tax rate to stimulate investment by both local enterprises and foreign investors,” it opined.

Kenanga Research has raised its end-2023 FBM KLCI target by 4% to 1,540 points. - FMT