Macquarie Equities Research (MQ Research) believes that Malaysia will go to the polls for General Election 15 (GE15) soon – either soon after the Budget 2021 on 6 November 2020 or by early first quarter of 2021 – and that the sooner elections are held, the better the prospects for the construction/infra sector. MQ Research remains constructive on the Malaysian market with a 1,648 year-end target for the FBM KLCI.

Event

• MQ Research hosted Ibrahim (Ben) Suffian, co-Founder of the Merdeka Center, an opinion research firm, at Macquarie’s ASEAN Conference. Ben concurs with MQ Research’s view that Malaysia will go to the polls for General Election 15 (GE15) in the not-too-distant future. He expects elections to take place either soon after the Budget 2021 (Nov 6) or by early 1Q21. With a slim majority in parliament, PM Tan Sri Muhyiddin Yassin needs to settle this issue sooner rather than later, to ensure proper functioning of government. While there are multiple views on who would lead the coalition post-election, MQ Research believes having a leader with a firm majority in parliament will be important for the market, as it would provide both political and policy certainty for five years. MQ Research remains constructive on the Malaysian market with a 1,648 year-end target for the KLCI.

Impact

• Perikatan Nasional (PN) likely to gain significant ground. Based on his analysis of the electorate and the various surveys conducted by the Merdeka Center, Ben believes PN could retake in excess of 20 seats, won by Pakatan Harapan in GE14, giving PN a comfortable majority in the 222-member parliament. Helping PN has been its handling of the Covid pandemic including the cash handouts to mitigate Covid’s economic impact. While overall approval ratings of the government have eased from a high of 58% in May 2020 to 51%, PM Muhyiddin’s approval ratings remain elevated at 69% (peak 74%).
• Budget 2021 potential platform to gain ground. Ben believes Budget 2021 could be used as a platform to further stimulate the government’s approval ratings. As outlined in MQ Research’s report, MQ Research believes Budget 2021 will feature an extension of the social safety net, higher minimum wages, increased spend on digitalisation, retaining/reskilling of workers as well as the restart of infrastructure spending. All these actions are likely to spur consumer and business confidence. The key question is whether the election takes place before the Budget is passed, ie November, so that PN can push it through or post-Budget which could be more dicey given the slim majority.
• Economy the key concern of Malaysians. Based on the Merdeka Center’s latest survey (15 July – 10 August), 60.8% of respondents had economic concerns at the top of mind – further suggesting a people friendly Budget 2021 could further aid PN’s attractiveness to the electorate. Interestingly, only 2% saw political issues as an area of concern. This despite the increased strain within PN following the recent convictions relating to the 1MDB issue.

Outlook

• The sooner elections are held, the better the prospects for the construction/infra sector. Gamuda is MQ Research’s top large-cap construction play with ECON, RANH and AQRS providing smaller cap exposure. Meanwhile, an increase in efforts to digitalise the economy will benefit Telekom Malaysia, with its significant fibre assets. The revival of the economy post election should also bode well for corporate banks, CIMB and RHBBANK. Other names, MQ Research believes investors should continue to overweight are exporters (PCHEM, SDPL, TOPG), BURSA (buoyant market volumes), opening up of the economy plays (GENM, MAHB) and Tenaga (defensive/yield).

Source: Macquarie Research - 25 Aug 2020