KUALA LUMPUR – Stock market investors expect the ruling Barisan Nasional to win comfortably in the upcoming 14th General Election, CIMB Research said.
The potential win would be positively viewed by the market, the research firm said today.
“BN currently has 133 out of 222 seats in the House of Parliament. We view BN’s widely expected win as neutral to positive for the market.
“The stock market’s performance post the election, will depend on the degree of selling pressure during the campaigning period and the poll results,” it added.
CIMB Research expects Bursa Malaysia to remain volatile during the campaigning period, largely due to the US-China trade war tensions.
It kept Bursa’s key FBM KLCI index year-end target at 1,880 points.
Prime Minister Datuk Seri Najib Razak dissolved Parliament last Saturday before unveiling BN’s election manifesto on the same day with pledges for broad voter bases.
Local and foreign analysts said BN’s social and economic pledges were not expected to significantly affect the government’s financial position.
On the converse, Pakatan Harapan’s manifesto especially its promise to abolish the Goods and Services Tax (GST) may lead to a wider budget deficit.
Hong Leong Investment Bank Bhd (HLIB) noted that BN’s manifesto boasted 14 major points with a focus on employment (jobs creation and enhancing employability), cost of living (affordable housing, 1Malaysia People’s Aid enhancement and higher minimum wage).
“BN’s manifesto was focused on employment and cost of living with financing of these measures likely to come from higher oil price. Easing cost of living burden was a heavily-weighted theme in PH’s manifesto which may increase the budget deficit from 2.8 per cent of GDP to four per cent,” HLIB said in a report today.
The firm said as most of the BN promises would be implemented over five years, there should be no significant impact to its 2018 economic headline projections. Its forecasts included a 5.3 per cent gross domestic product (GDP) growth, a 2.7 per cent inflation and no further interest rate hike for the year.
“We believe that most of the incremental cost this year from the proposed manifesto measures can be somewhat offset by higher oil revenue,” it said, adding that oil price had so far this year averaged US$67.2 per barrel versus the Ministry of Finance’s assumption of US$52 per barrel.
“We estimate that every US$1 increment would add RM300 million to the government’s coffers,” HLIB said.
Elaborating on PH’s manifesto launched in early March, HLIB estimated that its proposed GST abolishment would cause a loss of RM43.8 billion in government revenue. This would be partially offset by the reintroduction of sales tax (RM9.5 billion.
“PH plans to further fill this ‘GST gap’ by eliminating leakages, wastage and corruption which it estimates at RM15 billion to RM20 billion. Under this scenario, we estimate (albeit simplistically) that Malaysia’s 2018 budget deficit target of RM39.8 billion (2.8 per cent of GDP) would increase to RM56.6 billionn (4.0 per cent of GDP),” HLIB explained.
HLIB expects a status quo political outcome for GE14 premised on heightened three-cornered fights.
Its benchmark FBMKLCI target of 1,880 is unchanged based on 16.5 times price earnings on 2018 earnings or equivalent to a 7.8 per cent year-on-year growth.
Meanwhile, Moody’s Investors Service said although domestic political risks had increased in recent years, they had not adversely affected policy reform.
This was because the government had demonstrated commitment to its fiscal deficit reduction goals through past electoral cycles, Moody’s lead sovereign analyst for Malaysia Anushka Shah said.
Anushka said both BN and PH had unveiled specific spending programs targeted at key voter bases. They included raising minimum wages, greater cash handouts and relief for Felda settlers.
“The impact of these programs on the sovereign credit will depend on how they are funded and whether they have a negative effect by delaying government’s on-going efforts at fiscal consolidation.
“Economically, these programs are likely to boost consumption over the near-term, but against the backdrop of Malaysia’ export driven growth, the impact is not likely to be material and could be offset by inflation.”
Anushka added that Moody’s rating assessment takes into consideration broader political risk for all sovereigns.
“We see political risk as being ‘low’ for Malaysia, based on a moderate-probability low impact scenario,” she said.