With no clear indication of which coalition will form the next government, the prospect of Perikatan Nasional which is predominantly supported by the Islamic party PAS has given selected stocks on the KLCI, jitters.
Risks of the propensity of the government 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.
RHB expects the equity market to trade cautiously in the coming week. While a hung parliament was the base-case scenario, the strong electoral performance by the PN coalition it says was a surprise and expects regulatory risks to spike higher especially for the gaming, brewery, and tobacco sectors.
The research house says investors could remain wary of construction-related stocks, given the sector’s dependence on policy implementation. If an extended power vacuum ensues or if the new government’s policy position on infrastructure remains vague, the KLCON index could face a sell-off to reflect the political uncertainty. Further out, investors should re-focus on fundamentals, with a preference for non-politically aligned, large-cap value stocks
