2022 15th Malaysia General Election (GE15) – Potential Investment Opportunities

On 1 November, Umno President Ahmad Zahid announced that several long-serving MPs would not be contesting for seats in GE15. Notable names include Federal Territories Minister and Arau MP Datuk Seri Shahidan Kassim, and Communications and Multimedia Minister Sri Tan Annuar Musa. On 3 November, Shahidan, who has held the Arau parliamentary seat in the previous 4 terms, confirmed that he would be defending his Arau seat under the PN banner. We believe this could be a huge boost for PN’s campaign in GE15 and increases the probability of a minority government which could result in greater market volatility.

In a mega survey named “Suara Rakyat Malaysia Menuju PRU15” (Malaysian Voices: On the Road to GE15) conducted in a collaboration between several media outlets including The Star and research firms such as IIham Centre; it found that 35% of respondents support Barisan Nasional (BN) to lead the next government, while Pakatan Harapan (PH) and Perikatan Nasional (PN) garnered 18% and 12% respectively, 21% of respondents remain undecided. We believe that the votes of the 21% who remain on the fence have the potential to influence the outcome of GE15. It also found that the biggest issue voters wanted the government to address is the rising cost of living due to inflation. A separate survey conducted by the Merdeka Centre of Opinion Research also revealed that approval ratings for the current government is at 38% as of Sep 2022, lower than the 39% approval rating in Apr 2018, before BN suffered its historic defeat in GE14. Lastly, results also show that although UMNO and BN still has the support of a loyal base of older voters, PH has the advantage with non-Malay voters. Thus, we believe another key decider of the election would be whether the voter turnout rate for non-Malays will be high enough for PH to garner sufficient votes to oppose BN. Inflation and the cost of living will likely be the key issue which the 3 coalitions will aim to address during their campaign period from 5^th November to 19^th November.

Ultimately, keeping in mind that Malaysia’s Core Consumer Price Index (CPI) came in at 4.0% for September 2022, up from 3.8% in August 2022; We believe that the new government voted into power post-GE15 will only inherit the problems plaguing the current government. We expect the ruling government post-GE15 to reiterate some of the themes presented previously in Budget 2023 while making some adjustments based on economic conditions at the time. We believe the new government will provide support for:

• Tax cuts, subsidies, and social assistance for households and needy individuals
• Domestic consumption – encouraging the purchase of locally-produced goods
• Tourism recovery – As of July 2022, Malaysia had 3.2M tourist arrivals. In 2023, the government is targeting the arrival of more than 15M tourists
• 5G rollout: Digital Nasional Bhd was allocated RM1.3B to expand 5G network nationwide, aiming to cover 70% of highly populated areas

Thus, on a sector level, we favour sectors such as Telecommunication, Automakers, and Mid-market retailers as they match the themes presented above.

• Telecommunication Services: 5G rollout to serve as key growth driver while helping telcos save up to RM30B in infrastructure construction cost
• Auto makers:Local car brands such as Perodua which are relatively more affordable should see higher demand due to inflation
• Mid-market retailers:Benefit from higher disposable income on the back of proposed tax cuts. Increased tourist arrivals should also boost revenue for these retailers

We lean towards stocks that are driven by domestic demand, which will provide investors with the key benefit of safety from external global macro headwinds. Stocks that stand out are:

• Telekom Malaysia RM5.35 (-2.73% YTD)
• MBM Resources RM3.28 (8.83% YTD)
• Padini Holdings RM3.40 (21.43% YTD)