After an excruciating week of thrust, counterthrust and desperate rear guard lunges, the Yang di-Pertuan Agong AlSultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah finally appointed Datuk Seri Anwar Ibrahim (DSAI) as the nation’s 10th Prime Minister. He is expected to lead a unity government comprising mainly of Pakatan Harapan (PH) and Barisan Nasional (BN) MPs, in addition, to support from some smaller blocs that will likely represent a comfortable parliamentary majority.
Research house, RHB says Bursa Malaysia will continue to trade higher in a relief rally after staring at an abyss that was a much starker and less inclusive political alternative.
What’s next? The Government will have the following key priorities: i) A credible Cabinet to gain the confidence and trust of the business community and win over both foreign and local investors; ii) a swift re-tabling of Budget 2023; iii) establish key government economic priorities; iv) implement fiscal and economic reforms; v) initiatives to rationalise subsidies, and vi)measures to unite the country given the deep-seated political divisions that have emerged post the 15th General Election or GE15.
What else? Investors will be looking closely if the Government will be able to offer political stability and policy continuity. While there are some concerns on the longevity of the new Government, if a unity government emerges to comprise PH, BN, Gabungan Parti Sarawak (GPS), Gabungan Rakyat Sabah, Warisan and several independents, RHB’s back-of-the-envelope calculations suggest that DSAI will have the support of 147 MPs, a convincing majority that is just short of two-thirds. The new Government is a good representation of the cross-section of society and a more moderate approach will alleviate regulatory risk.
While we cannot rule out the risk of the Government retaining a propensity to continue dishing out populist measures, the new leadership needs to understand that some hard decisions will need to be taken in the country’s long-term interest. It is also believed that the PH leadership has taken lessons from its 22-month stint in Putrajaya in 2018 and will avoid making the same mistakes.
The research house expects the relief rally to be extended as equities play catch up to build on the recent tentative shift in investor sentiment on the back of rising hopes that the pace of monetary tightening will begin to ease and as the market looks ahead to a more pragmatic approach by China’s Government to contain COVID-19. In the short-term, however, investors are cautioned not to get too carried away, especially after the initial euphoria.
The new unity Government needs to prove its ability to work together as a team, something unimaginable just a week ago. RHB said it thinks subsidy and fiscal reforms will be the acid test. The presence of the Borneo bloc in the new administration will be positive for infrastructure programmes in East Malaysia. Another spike in markets should invite some short-term profit taking but further out, investors ought to re-focus on fundamentals with a preference for large-cap value stocks.
