KUALA LUMPUR (July 9): CGS-CIMB sees the current political scenario in Malaysia as a negative development for the market, domestic-oriented sectors, and firms with large foreign holdings, which might lead to a drop in the KLCI to 1,463 points. Its analysts Ng Lee Fang and Nagulan Ravi said in a note today that Prime Minister Tan Sri Muhyiddin Yassin’s position will be weakened by the decision of the ruling coalition’s key supporter, the United Malays National Organisation (UMNO), to officially withdraw support for him.
“The most likely scenario is that Muhyiddin continues unless and until it is demonstrated that he does not have the support of a majority of MPs in parliament,” they stated.
As a result, they believe the critical dates to monitor are July 26 to August 2 (Dewan Rakyat) and August 3 to 5 (Parliament) (Dewan Negara).
They also believe that in the upcoming parliament session, opposition MPs will try to bring a vote of no confidence against Muhyiddin.
“Overall, we are negative on this development because it adds to the country’s future leadership and policy directions,” they added. “This comes on top of the country’s escalating Covid-19 cases as mass-testing is undertaken in enhanced movement control order (EMCO) zones.”
They also stated that due to corporate results and political instability threats, the market is expected to weaken or remain sideways.
Due to the implementation of the mobility control order (MCO) and the emergency management control order (EMCO), Malaysian corporations are expected to post lower second-quarter earnings, they added.
Political uncertainty, they believe, will be detrimental to banking, construction, and property industries, as well as firms with significant foreign ownership, such as Top Glove Corp Bhd, Hap Seng Consolidated Bhd, and Dialog Group Bhd.
Exporters (gloves, technology, and plantations) will be less affected, while defensive plays (utilities and telcos) would be less affected.
“On these concerns, the KLCI might trade up to three standard deviations below its forward average price/earnings, putting KLCI levels at 1,463 points, where the market may bottom,” they warned.
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