May 10th, 2018 marked a day that made all Malaysian feel proud in the whole world. It is a day that surprised all foreign analyst. Like what I wrote in previous blog, almost all foreign analyst expected the previous administration under Najib would be able to retain power after General Election 14. Foreign investors were the ones that pushed KLSE stock market index to its current height at 1846.51, merely a few more points to its historical height.
Foreign market analyst considered this GE 14 a black swan similar to Trump Election or Brexit recently. But not for the local market analyst who are more in touch with the ground of Malaysia political environment. In Brexit event, it brought the London domestic market a deep dive after it happened. However, the US market turned unexpectedly strong bullishly right after Donald Trump won the Presidential election.
Mahathir the newly elected Premier enacted 2 days pubic holiday right after GE 14. There was no way to know which direction KLSE will react after market opens on Monday. Will Malaysia market turn bullish like the US markets or have a deep dive like London stock exchange after the Brexit vote? I believe this will be the main concern of most investors during this week end break.
First Revolutionary Change
For the long term economic outlook for every country after such revolutionary political change, the future holds better favors such as in Indonesia or India. However for short term, market might react with little jitters or even a major down turn.
Some will hold the view that KLSE will start with gap up on Monday because the long holiday break during this post-election would have cooled down all the shocking emotion of investors. Investors would jump in the market right away after it opens up on Monday morning.
While there are yet others would guess that market would still react to the change of government economic policies due to the change of administration. This change has never been experienced in Malaysia for the past 60 years since independence.
Though the power transition has been smooth and successfully, there are still little hip cups here and there, especially for local struggle of a number of state government. But the newly installed Federal government has yet to lay out a clear economic policy and direction.
Priority Cleaning Up Activities
What investors can perceive currently are those campaign promises, like abandoning the unpopular GST system, review of major China invested projects, installing back fuel subsidy, investigation of corruption, etc. All these campaign propagations appeared enlightening to voters but not for the economy or the investors. All these promises if implemented would cause economic set back because they will hamper income streams of the national finances.
The newly install administrators have yet to propose how they are going to generate governmental income or generate revenue for the national budget. These can be considered as uncertainty. Market does not like uncertainties. It will show you a deep dive before you can produce any satisfying assurances.
Worst of all, Mahathir has said during his campaign that he suspected Malaysia debt was much more larger than what the previous administration claimed. With the way the previous Barisan National abused its power to use national resources to finance its campaign, how much cash and goodies freely given out during the election, the deficit will surely be more adversely affected. If the new administration is going to reveal the truth of the national balance sheet, it would bring shocking reaction to all investors. Therefore, market behavior is expected to have a roller coaster ride.
Entering the Market
While there will surely be new opportunity when Malaysia has entered into a new era with a new strong batch of clean, talented and capable politician lineup, Malaysia will develop into another strong economy in Asia. The only concern now for us as investors is, when is the best time we can enter the market?
For mutual fund players, it is probably much easier to answer this question than stock players. Because once market opens on Monday, mutual fund investors will have many hours to observe market behavior and make his decision. As long as it is before 3:00 pm, the pricing cut off time of the day, he will be able to catch the price of the day before crossing over that time zone.
Possibly the main question is how large is your capital at hand. For small capital holders, I would suggest to wait until you see a clearer future after the dusts are settled comfortably. I would suspect the gap up on Monday market if it will ever happen, may not necessarily translate into a bullish market run up from now on.
There will possibly be some ugly revelation on how bad current balance sheet is, and there will be possibly some crack down on irregular practices done from previous administration every now and then. Criminal investigation of government link companies, or illicit financial transaction will surely on the list. All these activities will normally bring jitters to market. Though they are healthy but will be a birth pain to a new Malaysia future.
Construct with Risk Portfolio
If you have large capital, you can still top down when market goes down due to correction or market jitters. It always poses an investment opportunity for long term purpose if you enter cheaply. However, be aware that the lower the market dips, the more uncomfortable it becomes, especially when you bump with added challenge from external or geographical market tremors. So enter with a proper risk management strategy design to hedge against market risk.
If you have less risk tolerance, it would be best to enter when market touches bottom after the correction. When would that be? No one really knows as of now. We would have to be watchful and see how this new government develops step by step.
A big congratulation to all Malaysian and welcome everyone to a New Malaysia. There are plenty of new opportunity for investment and a much brighter future from now on!
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The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions. This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to make up individual investment decision.