Published On: 27 April 2018 | 5:00 PM

As highlighted in the previous article, the run-up to the 14^th general election (GE14) of Malaysia does not differ much from previous elections whereby Budget 2018 focuses on winning the hearts and minds of the people while structural issues are temporarily put on hold by the ruling coalition Barisan Nasional (BN).  Moreover, a fractured opposition leading to a three-cornered fight sparks speculation that BN bears a higher chance of winning back a two-thirds majority of the Parliamentary seats, which eluded them in the 2008 and 2013 general elections (GE12 and GE13).

A highly anticipated people-centric expansionary Budget 2018 was introduced mainly to address the burden of the surging cost of living. Budget 2018 provided a glimpse into BN’s GE14 manifesto. Let’s now look at how Phillip CFD can help you hop on the bandwagon for the FBM KLCI Index CFD that might benefit from the different outcome of the GE14.

The run-up to GE14 sees a similar trend with the 2004, 2008 and 2013 general elections, whereby FBM KLCI hovers near multi-year highs. Another similarity is that the KLCI usually trades in a narrow range as relative to the run-up to the dissolution of Parliament.

FBM KLCI Possible levels:

• Two-thirds majority win: Might trade above 1898 year high
• Popular vote win is an added bonus which might see KLCI move towards 1960 within a year amidst a backdrop of strong economic growth in 2018

Such an outcome might be comparable to GE12 in 2008, which was the worst election for the UMNO-led BN coalition whereby only 51.39% of all seats was secured. The popular vote (47.79%) was also lost to the opposition. This led the FBM KLCI to plummet by more than 9% to 1173.22 points on the first day of trading after election before fully recouping and breaking higher within a month. However, the Great Recession of 2008 that started in the US brought the FBM KLCI to almost 40% lower within a year after the election.

Although two-thirds majority (59.91%) and popular vote (47.38%) eluded BN again in GE13 in 2013, the market cheered the improved outcome from GE12 and the index spiked the day after the election to a high of 1826.22 (7.8%) and moved sideways with downward bias for several months before resuming uptrend.

FBM KLCI Possible levels:

• Weaker win than GE13 in 2013 with further losses in popularity votes to the opposition might see a knee-jerk sell-off, with support levels at 1790 and 1720 before resuming any uptrend.

A win is still a win and hence there might present good opportunities to get exposed to the hot sectors that historically benefits from a BN win. Clients who are already positioned in Malaysian equities before GE14 can use FBM KLCI as a short-term hedging instrument to protect their positions.

Although we see disunity in the opposition coalitions before GE14, polls are showing substantially more popular votes for the two smaller opposition coalitions in early 2017 (based on a survey by cilisos.my). The Dr Mahathir-led PH seemed to have grown from strength to strength. PH was able to leverage everything from Prime Minister Najib’s 1MDB scandal to reuniting with ex-opposition leader Anwar. An ex-cabinet minister under the ruling coalition, Sahfie Apdal, whom Najib fired over probing into the 1MDB scandal formed a new party to contest with BN in Sabah, one of the historical stronghold of UMNO. A win by the opposition would mean the first loss by the incumbent since Malaysia’s independence almost 60 years ago.

FBM KLCI Possible levels:

• Based on the strong run-up and positioning of investors to GE14, this unexpected outcome might see a stronger sell-off.

• Levels to watch would be 1720, 1650, 1610

In Part 3 of our Malaysia Upcoming series, we will explore the techincals of some companies and sectors.

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