KUALA LUMPUR (July 9): CGS-CIMB sees the latest political situation in Malaysia as a negative development for the market, domestic-oriented sectors, and stocks with high foreign shareholding, which may cause the KLCI to fall to 1,463 points.

Its analysts Ng Lee Fang and Nagulan Ravi said in a note today, the move of the ruling coalition's key ally United Malays National Organisation (UMNO) to officially withdraw support for Prime Minister Tan Sri Muhyiddin Yassin will weaken his position and lead to concerns of potential changes.

“The most likely scenario could be that Muhyiddin carries on unless and until it is proven that he does not have majority member of Parliament (MP) support in parliament,” they said.

As such, they opined that the key dates to watch are when the parliament reconvenes on July 26 to Aug 2 (Dewan Rakyat) and Aug 3 to 5 (Dewan Negara).

They are also of the view that opposition MPs are likely to seek to table a vote of no confidence against Muhyiddin in the upcoming parliament session.

“Overall, we are negative on this development as it leads to further uncertainties on the future leadership and policy directions of the country.

“This comes on top of rising Covid-19 cases in the country as mass-testing is conducted in enhanced movement control order (EMCO) areas,” they said.

They also added that the market is likely to weaken or stay sideways due to corporate earnings and political uncertainty risks.

Malaysian corporates are likely to report weaker 2Q earnings due to the implementation of movement control order (MCO) and EMCO, they added.

They opined that the political uncertainties will be negative for banks, construction, property sectors, as well as stocks with high foreign shareholding, such as Top Glove Corp Bhd, Hap Seng Consolidated Bhd, Dialog Group Bhd.  

Meanwhile, exporters (gloves, technology and plantations) and defensive plays (utilities and telcos) will be less affected.

“KLCI could trade up to three standard deviations below its forward average price/earnings on these concerns, which would place KLCI levels at 1,463 pts, where the market may bottom,” they said.

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