Govt expected to tighten belt after GE

(The Sun Daily) – The government is expected to introduce the goods and services tax (GST), resume its subsidy rationalisation programme and raise electricity tariff after the 13th general election (GE) as it moves to tighten its belt, said Alliance Research Sdn Bhd, adding that such moves will adversely affect consumer disposable income in the near term and dampen consumer sentiment.

Its head Bernard Ching said based on a recent survey conducted by Alliance, investors expect the GE to be held in the fourth quarter of this year, with Barisan Nasional (BN) expected to win by a simple majority but with reduced popular votes.

According to results of the survey conducted among 72 respondents comprising fund managers and buyside analysts from domestic institutional funds, half expect the GE to be held after Budget 2013 on Sept 28, but before year-end, another 19.4% expect the polls to be called between January and March next year and only 4.2% believe it will take place before the budget.

“The survey results also indicated that investors are generally pessimistic that BN would recapture more parliamentary seats in GE13, with only 12.5% expecting an increase. Majority of the respondents (52.8%) expect the results to remain status quo, that is, similar to the 12th GE with a 5% variance,” said Ching in a report today.

“On the downside, 34.7% expect BN to lose more seats. This implies that majority of the respondent expects the ruling BN to form the next federal government,” he added.
Investors also expect Malaysia’s stock market to correct once election is called.

“A total of 68.1% of the respondents expect the FBM KLCI to contract once the GE is called. In addition, 40.3% of them will avoid sectors perceived to be affected by elections,” said Ching.

“Our analysis also showed that investors have been risk-averse, resulting in defensive sectors such as consumer, telecommunication and REIT outperforming the FBM KLCI during the first eight months of the year.

“On the other hand, cyclical sectors such as construction, property and technology have significantly underperformed the FBM KLCI over the same period,” he added.

Nevertheless, the research firm believes that market performance over the long term is dictated by fundamentals and macro outlook, and while political “shocks” do impact market performance, they are expected to be short-lived.

“Our analysis of the last general election showed that a market selldown due to political ‘shock’ is temporary and will normalise in three months. As such, investors with longer-term investment horizon should capitalise on cyclical stocks within the construction, utilities and gaming sectors, which are likely to be re-rated post-GE,” said Ching.