Surprisingly Malaysia market opened on last Monday with minimum volatility. GE 14 election shock was quickly absorbed within an hour after market opened officially. Ever since after then, market remained stable throughout the week without much selling pressure. This sign could be interpreted that Malaysia market has accepted the change of regime positively.
Throughout the week, all Malaysians have been watching the development of the new government closely. From the nomination of the three top cabinet portfolio, the formation of special economic advisory council and the appointment of full cabinet members at the close of the week, and the speedy action for graft and corruption probe, to the relief of Anwar Ibraham from prison, were all done within a week after the new government took over the new role to revamp the country.
Risk of Fiscal Debt
Though foreign investors were still staying at the sideline to watch how this new government is going to tackle its debt. This is especially true when this PH government has pledged to fulfill its election promises such as abolishing the unpopular GST system, subsidized public fuel consumption, and do away all highway toll fee etc. One of the ways, to avoid falling deeper into the pit of endangering debt is to cut down government expenditure. The other way to lower fiscal debt is to bring back wealth that was stolen by previous government vice practices such as 1MDB, corrupted top government premiers and officials etc.
Looking at the name list provided by immigration for travel ban among numerous key wealthy politicians whom were long regarded as corrupted cronies in the past, Mahathir has started his long legal battle to recover stolen sovereign wealth. Malaysians are getting more and more realization on how much filthy rich politicians have been in this country. If all of these stolen or messed up resources are taken back, it could probably help lower national debt quite substantially.
Though the designated Treasurer of the new government has expressed his shock after realizing how bad the government balance sheet is, the market did not react accordingly. It shows the general market has its confidence to deal with the fiscal problem. Another reason is possibly because the Treasurer did not provide specific figure to shock the market. Or the market has already priced in those factors. We will have to observe further to finalize it.
Much More Recovery Works
Currently, there would possibly be too early to tell the new government has already done its proper grounding work. Looking forward, there are still a long way to go to unveil itself on how this new regime is going to handle with this newly born Malaysia. There could be possibly hip cup here and there within the ruling coalition. The people have seen the delay in the formation of the new cabinet members and realized there were internal power struggle between different parties. The newly formed government surely will go through a process of infighting, negotiation, integration, common understanding or consensus before the benefit of the new Malaysia can be truly realized.
In the administration side, there are still a lot of house cleansing work to be done. It is a mammoth task ahead. From the structural reform to the executive role such as police force, there are still a lot of corruption and practices needed to be eradicated.
For stock market players, since there was no major correction, there would not be any good opportunity to enter market as yet. Most good stock counters previously expensive remain expensive as well. However, for mutual fund players, there’s a segment of market worth our consideration.
Small Cap Fund
Before the GE 14 election, there was started a massive selling pressure among small cap segment. All small cap funds are under much pressure and under performed at this moment. However, not all small cap worth our immediately investment. There were many funds that invested into government link companies or government projects recipients are now under heavy selling catastrophe because of the removal of favoring perspective under the new government.
Therefore before we enter any small cap fund, we have to double checked from their annual report to see how many government link companies or project recipients the fund invested. Funds with less involvement or no involvement at all would be the better choice.
When we enter Malaysia fund, do keep in mind that Malaysia stock performance is still under the global risk environment where trade war between China and US and geographical tension between US and North Korea have not been resolved comfortably. The rising US bond yield and Fed interest rate are also major concerns for stock market sentiment at this moment.
Besides, there would still be some possible unpleasant development for the new government in short term. The down side risk is still exist with current market. Therefore, we should remain cautious with proper risk management installed when we invest. But nevertheless, any down turn would pose a good entry opportunity.
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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.