Research houses positive on economic outlook after state elections

 

The just-concluded six state elections did not change Malaysia’s balance of power, despite opposition gains.

While the combined seat tally of the coalition partners in the ruling Pakatan Harapan-led unity government fell in all six states, Harapan retained comfortable majorities of 86 percent, 73 percent and 61 percent in Negeri Sembilan, Penang and Selangor, said research houses.

CGS-CIMB said that despite a reduction in the number of seats, the elections served as an endorsement of the unity government led by Prime Minister Anwar Ibrahim.

“Maintaining the status quo, in our view, now provides real hope for policy clarity and continuity over the remaining four-year term of the government, a key market catalyst we had been waiting for.

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

CGS-CIMB said the Madani Economy announced by the PM on July 27 provided a glimpse of the government’s policy framework.

However, there now needs to be a proactive implementation of key macro areas, such as fiscal consolidation, broadening growth drivers and deepening initiatives to stimulate investment.

“These will likely be balanced by populist measures to raise the incomes of lower income groups and better control the cost of living, in our view.

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

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 voter base shift from centrist to a more conservative one.

“Alongside results season jitters, we could see some market weakness in August but would take this as an opportunity to accumulate to ride on an envisioned recovery towards fourth quarter 2023 till the year-end. We maintained the FBM KLCI target at 1,530 points,” the research house noted.

Expediting key initiatives

Meanwhile, Kenanga Research said it is mildly positive on the outcome of the just-concluded state elections as the ruling unity government retained control of Selangor, Penang and Negeri Sembilan, albeit with an eroded majority.

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

“Also, having crossed the key final hurdle, we believe the unity government will expedite its policy initiatives, particularly subsidy rationalisation and tax reform.

“That will address the long-standing concern of investors over the long-term fiscal sustainability of the nation, which should boost the appeal of the local stock market,” it said.

Kenanga also expected the government to roll out the much talked about target fuel subsidy scheme, be it a cash subsidy to the low-income group or some form of discount offered to the group at the pump subject to certain electronic verification.

The savings from subsidy rationalisation, it added, would then be put to more productive use, such as economic development, including public infrastructure spending, and investment in human capital, including education and training.

“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 raised its end-2023 FBM KLCI target by four per cent to 1,540 points as the nation sailed into more tranquil political waters after the just-concluded state elections.

- Bernama