Market Outlook as at May 13, 2018

GE14 brought a HUGE surprise for all Malaysians – the defeat of omnipotent BN. It is generally true that whatever is good for Malaysia will also be good for the stock market. Alas, the "upset" in GE14 will likely be one of the exceptions to that rule!

It is fair to say that while the market was nervous ahead of the election, it was still pricing in the usual BN win. As such, the unexpected election outcome will lead to a period of heightened political uncertainties, and any uncertainty will likely be viewed as a negative surprise for the market.  

In the short term, I believe the market will undergo a sell-off. How long & deep will the sell-off be, are hard to predict. The appointment of Lim Guan Eng to the post of Finance Minister and the setting up of the Council of Elders (comprising of prominent individuals) may instill a degree of confidence in the market. However this good work can be undone by other development - including internal squabble between the parties in Pakatan Harapan.

From the chart below, I believe that FBMKLCI should have good support at 1800. If that support is violated, it may drop to the long-term uptrend line, SS at 1750.

Chart: FBMKLCI's weekly chart as at May 8, 2018 (Source: Shareinvestor.com)

Pakatan Harapan has proposed the cancellation of the Goods and Services Tax (GST) and raising minimum wage. These measures will boost consumers' spending; thus benefiting the consumer stocks.

Here is a short list of consumer stocks (with closing prices) to consider:

• Blue chip stocks: BAT (RM22.46), HEIM (RM20.46), CARLSBG (RM17.88), PANAMY (RM34.74) and AJI (RM21.88).
• 2^nd liner stocks: PADINI (RM4.50), MFLOUR (RM1.52), KAWAN (RM1.95), GCB (RM1.45), CAB (RM0.835), CCK (RM1.45) and ASIAFLE (RM2.68).

Pakatan Harapan has promised to review major public projects, such as the East Coast Rail Link (ECRL) and the Kuala Lumpur-Singapore High Speed Rail (HSR), as well as improving the government procurement processes. Both of these measures will likely lead to a  slowdown in large-scale projects over the short and medium term. Thus, they are expected to have a negative impact on the construction and building material sectors. The top losers are likely to be:

• GAMUDA (RM5.10) – with exposure to MRT 3 and HSR
• YTL (RM1.33) – with exposure to HSR and Gemas-JB rail double tracking
• MRCB (RM1.00)– with exposure to HSR 

In the long run, the change of government may lead to a restructuring of the Malaysian economy which could be beneficial to the people and the nation. If our new leaders - including one 92 years young leader - can truly restructure & rejuvenate our economy, then the outlook will be good a few years down the road. The history of Malaysia is about to be re-written and we are all part of that story.