by: Tam Ging Wien
All examples and stocks quoted here in this article and on the ProButterflyTM site are for learning purposes; it does NOT constitute financial advice or a Buy/Sell recommendation. Contents are reflective of personal views and readers are responsible for their own investments and are advised to perform their own independent due diligence and take into account their own financial situation. If in any doubt about the investment action you should take, you should consult a professional certified financial advisor.
The "Malaysian General Elections (GE14) – An Investors Perspective" series is intended to discuss and generate investment themes and ideas, but it should NOT be misconstrued or otherwise interpreted as financial advice.
In our previous articles in this series, we covered a summary of the major points of the new Pakatan Harapan government manifesto.
In summary, the Pakatan Harapan (PH) has campaigned with a very clear message of hope for the people of Malaysia in their manifesto entitled Rebuilding Our Nation Fulfilling Our Hopes. The manifesto sets out the following pledge:
The manifesto sets out the following promises that the new government intends to fulfil within the first 100 days of taking office:
In addition to the 10 promises within 100 days, there are also 5 major pillars of reforms that the PH government promises to achieve within the next 5 years:
Taking the 10 promises and 5 key pillars at face value and assume that the new PH government will see through its promises and implement them in the most efficient and practical way.
We we 6 major (non-exhaustive) groups of stocks which will be impacted as a result of the implementation of the PH Manifesto:
This week, we will cover stocks in Group 6 which could potentially be impact by the Ringgit.
The foreign exchange markets will likely react depending on how the implementation of the policies go. Should the markets view the policy changes to be negative, the Ringgit may take a hit and likewise gain should the policy changes be viewed positively. Following this, sectors which are primarily export driven are likely to be beneficiaries of a weakening Ringgit but will take a hit should the Ringgit spike upwards.
One perspective could be how the market views the GST removal. Some segments of the market view this negatively as they argue that the GST removal will result in a budget shortfall for the government. This will place undue pressure on the country’s finances and impact the ringgit negatively. The PH government, however, argues that by reviewing government projects and reforming the procurement processes, they are able to bring costs down and cut public sector wastage, allowing the reduced reliance on taxes.
Another perspective is the pace of the USD appreciation against the MYR. In the near term, the Fed rate hikes are expected to result in a strengthening US dollar. Back in Malaysia, Bank Negara (Malaysia’s Central Bank) raised its overnight policy rate (OPR) by 25 basis points to 3.25 per cent in January 2018 – the first time in 3.5 years.The pace of the rate hikes in both countries could impact the USD-MYR exchange rates.
The PH manifesto suggests that the PH leaders view the weakening Ringgit over the years to be a major factor in the rising prices of goods. According to Promise 2 of the manifesto, surging price items are due to “Malaysia (importing) more than 90 percent of (their) dairy products, 70 percent of meat, and 50 percent of vegetables” and the weak Ringgit. They propose for Bank Negara to devise a strategy to increase the Ringgit value substantially within 3 years but the details on how this will be achieved is scant at the moment.
Regardless of the views taken on the direction of the Ringgit, we certainly have to agree that the Ringgit’s changing trends are likely to have an impact on businesses that rely heavily on imports and exports.
The following are a non-exhaustive list of 5 major groups of businesses listed on the Bursa Malaysia stock exchange that could be impacted by the Ringgit’s rise or fall:
We have discussed at length the various automotive players in the industry in the previous sections.
Moving on to glove players, the key Malaysian players are Top Glove Corporation Bhd (BVA), Hartalega Holdings Bhd (HARTA), Kossan Rubber Industries Bhd (KOSSAN) and Supermax Corporation Bhd (SUPERMX). There are also Malaysian glove companies such Riverstone Holdings Ltd (SGX:AP4) and UG Healthcare Corporation Ltd (SGX:41A) listed in Singapore. Top Glove is dual listed in both markets with Malaysia being its primary listing.
Among the furniture makers listed on the Malaysian bourse are Poh Huat Resources Holdings Bhd (POHUAT), Homeritz Corporation Bhd (HOMERIZ), Latitude Tree Holdings Bhd (LATITUD), Sern Kou Resources Bhd (SERNKOU), Lii Hen Industries Bhd (LIIHEN), HeveaBoard Bhd (HEVEA) and Jaycorp Bhd (JAYCORP).
Most semi-conductor players are usually export-driven businesses as their orders are usually from overseas customers that outsource the manufacturing/testing of integrated circuits to lower cost production locations such as Malaysia. <http://www.theedgemarkets.com/article/capital-sector-year-semiconductor-malaysian-counters-outperform-fang-stocks> There are 3 main types of semi-conductor businesses among Malaysian-listed semi-conductor players:
Examples of OSAT stocks are Malaysian Pacific Industries Bhd (MPI), Globetronics Technology Bhd (GTRONIC), Inari Amertron Bhd (INARI) and Unisem (M) Bhd (UNISEM) whose main outsourcing services include assembly, packaging, fabrication and testing.
Examples of ATE stocks are ViTrox Corporation Bhd (VITROX), Elsoft Research Bhd (ELSOFT), Aemulus Holdings Bhd (AEMULUS), MMS Ventures Bhd (MMSV), VisDynamics Holdings Bhd (VIS) and Pentamaster Corporation Bhd (PENTA) which services the OSAT companies and other multinational semiconductor manufacturers.
The final group are the high-performance chip testers such as JF Technology Bhd (JFTECH) and FoundPac Group Bhd (FPGROUP).
Lastly, the strength and weakness of the Ringgit is likely to affect tourism-related counters. The most direct play on tourism would be airlines such as Airasia Group Bhd (AIRASIA) and AirAsia X Bhd (AAX), listed airport operators Malaysia Airports Holdings Bhd (AIRPORT), integrated resorts operator Genting Malaysia Bhd (GENM) theme park operator Only World Group Holdings Bhd (OWG), and hotelier Shangri-La Hotels (Malaysia) Bhd (SHANG).
An indirect way to assess the tourism sector would be through property developers and investors like Avillion Bhd (AVI) and Landmarks Bhd (LANDMRK) as well as Atlan Holdings Bhd (ATLAN) which controls close to a 74% stake in the Singapore listed Duty Free International Ltd (SGX:5SO) that operates the ZON Duty-free retail outlets. These companies have exposure to hotels, resorts and travel services.
We will be watching the political developments in Malaysia very closely over the coming weeks.
In our previous articles on the Malaysian GE14, we discussed the results of the election and the immediate impact on the markets as well as the potential stocks directly impacted by the leadership change, review of the megaprojects, removal of GST, abolishment of highway tolls and the reduction of excise duties on imported vehicles. Do catch this article if you haven't done so!
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