PM Sabri has dissolved Parliament, paving way for GE15. If recent history serves as a guide, polling could happen around early-to-mid Nov. Dissolving Parliament shortly after tabling the national Budget is not unprecedented – this happened in 1999 (for Budget 2000), in which a similar version was presented again post GE10. During GE12/13/14, the KLCI registered absolute returns of -8.5%/+0.6%/+0.5% and relative returns (vs ASEAN-5) of -8.2%/-0.8%/+2.7%. Maintain our end-2022 KLCI target at 1,540.

NEWSBREAK

Yesterday, PM Dato' Sri Ismail Sabri (now caretaker PM) announced the dissolution of Parliament which has been consented by the Agong.

HLIB’s VIEW

What’s next? Following the dissolution of Parliament, the Election Commission (EC) will have to announce the nomination date and polling date within 60 days. This means that the latest possible date for GE15 to be held is on 9 Dec. However, the past three GEs saw a gap of 24-32 days between Parliament dissolution and polling date – using this as a gauge, GE15 may be held between 3-11 Nov. This guesstimate jives with the widely held believe that the national polls are unlikely to happen too close to Dec to avoid the year-end monsoon season which brings about flooding risk.

Budget 2023 2.0? Budget 2023 was tabled in Parliament last Fri, just three days before Parliament was dissolved. At risk of stating the obvious, Budget 2023 has yet to be passed in Parliament – however this situation is not unprecedented. In 1999, Budget 2000 was tabled on 29 Oct and Parliament was dissolved on 11 Nov. Subsequent to GE10 (29 Nov 1999), a new budget similar to the one presented prior to the dissolution, was tabled again on 25 Feb 2000. A noteworthy point here is of cause, that both versions of Budget 2000 were tabled with the same political parties in power (i.e. BN) and the same man helming the premiership (i.e. Tun M).

Market performance. Studying the KLCI’s performance for the past three GEs between Parliament dissolution to polling date indicates no clear or consistent trend. Over that said period (i.e. from dissolution to polling), the KLCI fell -8.5% during GE12 (coinciding with the onslaught of the US sub-prime crisis which eventually morphed into the GFC), but rose marginally by +0.6% in GE13 and +0.5% in GE14. When stacked against the ASEAN-5 index, KLCI underperformed during GE12 (-8.2%) and GE13 (-0.8%), but outperformed during GE14 (+2.7%).

Multi cornered fights? While the landscape is rather fluid to guess GE15’s permutations, it seems that multi cornered fights could be on the cards. This could possibly involve BN (led by UMNO alongside MCA and MIC), PH (PKR, DAP, Amanah and potentially MUDA), PN (Bersatu, PAS, Gerakan) and some newly formed parties (Tun M’s Pejuang and its GTA coalition, PBM, etc.), not to mention several state based parties and coalitions in East Malaysia.

Maintain end-2022 KLCI target at 1,540 based on 15.5x PE (-1SD 5Y) pegged to mid-CY23 EPS. Granted, PE valuations are rather flimsy given the cloudy external climate, however we take some solace that (i) PB is at -2SD, which has been a decent gauge of bottomed valuations and (ii) foreign shareholding is near bottom levels (Sep: 20.6%). Expanding further on this, we would tactically bottom nibble on current weakness to ride on the traditional Dec window dressing effect which had a 92% positivity rate post-GFC, not to mention that election woes would be done and dusted by then.

Source: Hong Leong Investment Bank Research - 11 Oct 2022