Macquarie Equities Research (MQ Research) hosted a political analyst in a call to get his views on the ongoing political situation in Malaysia. The current view is that a change of government is unlikely, which should be positive for the market. Further, the market is now looking forward to end-May when the government is expected to announce its stimulus package for the economy.

Event

• MQ Research hosted political analyst, Jahabar Sadiq, on a Macquarie Insights call on Friday morning (15 May) to get his views on the ongoing political situation in Malaysia. In conclusion, Jahabar feels that a vote of confidence is unlikely to materialise soon and even if it did, the chances of a change in government are low. This should be positive for the market as it should at the very least remove a layer of uncertainty that may be clouding investors’ perception.
• Separately MQ Research has tried to gauge the level of activity in the Malaysian economy using data from the World Air Quality Index and Google Earth’s Engine, which uses data from Copernicus Sentinel Data. In summary, based on these data sets, activity levels have picked up since the lifting of the MCO, but appear to be below levels in 2019.

Impact

• Politics – noisy but unlikely to impact. With the leader of Parti Keadilan Rakyat, a key component (39 out of 92 MPs) of the Opposition, Anwar Ibrahim is said to have given his word not to file the motion; it is questionable if Tun Dr Mahathir has the numbers to have the motion passed. This should leave the Perikatan government in power and able to push through the much awaited post-MCO stimulus packages. Note that the vote of no confidence will not be carried out on 18 May. This means the earliest it can be held is during the July/August parliamentary sitting. Jahabar believes the more likely timing of the vote will be during the debate of the 2021 Budget in October/November.
• Stimulus next. The market is now looking forward to end-May when the government is expected to announce its stimulus package for the economy. With many businesses still struggling, this will be an important event. According to Jahabar, key infra projects are on track despite the tight fiscal situation. MQ Research expects the MRT3 and potentially HSR projects to be key components of the post-MCO stimulus. Others including the Johor-Singapore RTS project could see light of day too.
• The challenge? With PM Muhyiddin’s coalition partners seeking a bigger role in government, the move to political appointees to head government institutions is likely to continue. While not positive, MQ Research thinks the key for government linked companies (GLC) under its coverage will be that professional managers continue to drive the business and adhere to strict corporate governance. To that end, MQ Research believes there are sufficient checks and balances at least in the listed space.

Outlook

• Reduced risk of a further change in government should be positive for the market and the construction sector in particular. Within construction GAM and ECON remain MQ Research’s top picks. MQ Research also continues to favour global leaders/exporters (TOPG, PCHEM, SDPL, IHH), defensives (TNB, RAHH, telcos) and selected banks (CIMB, RHBBANK).

Source: Macquarie Research - 18 May 2020