RHB RESEARCH EXPECTS EQUITY MARKET TO TRADE CAUTIOUSLY IN COMING WEEK

KUALA LUMPUR, Nov 20 (Bernama) -- RHB Research expects the equity market to trade cautiously in the coming week, due to the uncharted political waters in the aftermath of the 15th general election where no single coalition has secured enough parliamentary seats to form a government.

In a research note today, RHB Research said this outcome constitutes a worst-case scenario for markets, with investor sentiment likely to remain clouded when markets reopen - depending on the duration of the power vacuum, the quality of the Cabinet members, and the parliamentary majority of the eventual government that will determine its ability to institute reform.

“While a hung parliament was the base-case scenario, the strong electoral performance by the Perikatan Nasional coalition was a surprise and we expect regulatory risks to spike higher especially for the gaming, brewery and tobacco sectors.

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“Investors could remain wary of construction-related stocks, given the sector’s dependence on policy implementation," it added.

The research firm said if an extended power vacuum ensues or if the new government’s policy position on infrastructure remains vague, the Bursa Malaysia Construction index could face a sell-off to reflect the political uncertainty.

“Further out, we expect investors to re-focus on fundamentals, with a preference for non-politically aligned, large-cap value stocks," it said.

RHB Research said investors will be looking closely at whichever coalition that gets to form the next government to see if it can offer political stability and policy continuity.

“The global macroeconomic challenges in 2023 will require a swift re-tabling of Budget 2023, the establishment of key government economic priorities, initiatives to rationalise subsidies, and proposals to broaden the tax base and institute economic reform.

"The quality of the Cabinet members and members of the administration must be adequately credible, so as to gain the confidence and trust of the business community and win over both foreign and local investors.

“Equally important are measures to unite the country, given the deep-seated political divisions that are increasingly evident," it said.

The research house also noted that risks of the government’s propensity to continue implementing populist policies – rather than the hard decisions that need to be taken in view of the country’s long-term interest – could depend on the size of the parliamentary majority enjoyed by the government.

-- BERNAMA