• We see opportunities in equities for long-term as Malaysia undergoes reform
• Convincing win and political calm post-GE is a positive
• Ringgit to benefit as political uncertainty no longer a major risk and crude oil price improves
• We remain positive on equities and retain our year-end 1,950 target

Reforms to begin in earnest

We expect both political and economic reforms to be undertaken by the new government to benefit the country in the long term. Already, the new prime minister has stated his serious intentions “to clean the country and reduce the economic problems facing our country”. As a start the Malaysian cabinet will be reduced from 35 to a maximum of 30 ministries – hence helping to improve economic management, bureaucracy and eliminate political patronage.

Convincing win is positive

We expect short term volatility as investors digest the changing political landscape in Malaysia. Nonetheless, we see this as opportunity for long-term investors, rather than a crisis. We initially had expected Malaysian equities to see a decline to 1,750- 1,800 for the KLCI. This initial view is premised on Pakatan Harapan (PH) winning by a slim margin. Although it is possible for the market to decline by 5-10% as seen in the 2008 elections, we believe this should be temporary as policy direction becomes clearer.

The GE14 results saw PH winning comfortably and managed to secure key states, including Johor and Perak, as well retaining Selangor and Penang by a larger majority. We think investors may look past short-term uncertainties as the huge victory presents the PH-led government a smooth path to manage and administer the country, and proposed new measures for significant reforms to be implemented.

From a political standpoint the key risks to monitor are:

• PH ability to govern effectively given its inexperience;
• Possible internal conflict, especially for allocation of ministers’ positions; and
• The timeline for succession for PM Tun Mahathir to pass the reign to Dato’ Seri Anwar Ibrahim.

However, given the stability seen so far since 10 May 2018 when the GE outcome was finalized, we believe the key risks above will lessen in the near term.

Source: BIMB Securities Research - 14 May 2018