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KUALA LUMPUR, Dec 27 -- Malaysia’s policy transition from monetary accommodation and fiscal expansion to austerity and consolidation raises the risk of volatility in the stock market in 2022, but this is only likely to happen in the second half of the year and after the 15th general election (GE15).
According to Kenanga Research, until then, conditions are supportive for positive stock market returns as liquidity remains ample, while value has emerged following 2021’s steep market decline and regional underperformance.
“And for all the anxieties that the recent floods have caused, the implied fourth quarter of 2021’s (Q4 2021) earnings results already suggested that Q4 2021’s earnings would be the lowest.
“(This is) despite commodity prices holding up and a surge in economic reopening activities (briefly disrupted by the floods notwithstanding), plus encouraging data of leading economic indicators released recently,” the research firm said in its investment strategy note today.
However, it noted that catalysts are lacking and there will be the usual pre-election inertia that will drag the market advance, and so returns will not be broad-based.
While the severe floods in mid-December would likely impact Q4 2021 earnings, Kenanga Research said the market has already projected very conservative earnings estimates around lockdown-related impacts which may have been overly aggressive, given anecdotal evidence of a surge in economic reopening activities.
The research firm said several signs suggest the likelihood of GE15 being called well before the July 2023 deadline, including the resounding win by the Barisan Nasional in the November Melaka state election, followed by the convincing win by its close ally, Gabungan Parti Sarawak, recently,
Additionally, economic data released in Q4 2021 suggests the current recovery is intact for now and would likely hit the government’s targeted 3.0-4.0 per cent growth, it added.
“The opposition side is more fragmented after the Sheraton Move and it looks highly unlikely for Pakatan Harapan, Bersatu and Parti Pejuang to regroup. And finally, the pandemic looks to be subsiding,” it noted.
Kenanga Research said these events should likely embolden the ruling coalition to call an election possibly as early as Q2 2022.
It added that liquidity remains ample and no tightening is expected in Q1 2022.
“We believe that the tightening would only likely be a post-GE15 event. When Bank Negara Malaysia finally tightens by raising overnight policy rate and statutory reserve requirement, we expect heightened market volatility as liquidity reduces,” said the research house.
However, it pointed out that the banks are likely to benefit from net interest margin expansion associated with rising interest rates.
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