Strange bedfellows currently make up the unity government with BN and PH component parties which were once at odds with each other now finding themselves seating on the same side of Dewan Rakyat.

It is hoped that the new unity government which effectively commands a two-third majority in Parliament would be able to close ranks and restore political stability in order to carry out much needed fiscal and institutional reforms to attract foreign interest and invigorate the economy.

These include broadening the country’s revenue tax base and rationalising a ballooning subsidy bill that is projected to hit RM80 billion this year. If these reforms can be effectively carried out, we could see a reversal of foreign fund flows and help revitalise the local equity market.

At the time of writing, the unity government has yet to be unveiled. Though, expectations are that we would see a much a leaner Cabinet comprising a mix of technocrats and politicians that would help drive economic policies. It will be important to monitor key Cabinet roles such as Finance which could set the policy tone for other ministries.
Technicals are Favourable

Mired by political instability, the local market has been stuck in the doldrums for the past few years. Since 2014 to date, when 1MDB issues started hitting the market, the local equity market fell by over 18% in Ringgit terms or 40% in USD terms, as USD$15.9 billion worth of portfolio monies flowed out.

Foreign shareholding reached a 10-year low as political uncertainty dissuaded foreign investors from ploughing money. Domestic institutional funds have been also highly cashed-up as they sit on the side-lines.

Crucially, if there is a return of political stability and a growth story, foreign inflow could drive our markets higher. In every year between 2010 to 2021, whenever there is net foreign buying, our market has been driven positively higher.

With emerging clarity and successful execution of policies, we expect the local market to gradual ascend higher as it climbs over walls of worry in the political sphere. The first obstacle is when Prime Minister Datuk Seri Anwar Ibrahim tests his parliamentary majority through a vote of confidence on the 19th December when Parliament convenes.

With low positioning and foreign funds underweight Malaysia, we could see as much as RM10 billion in terms of foreign inflows, should foreign investors neutralise their benchmark-weights in Malaysia as confidence grows with greater clarity.

It is still early-stage but Malaysia could emerge as a prime growth destination for reinvestment and political stability in the region after being out of the radar for so long.

We’ve seen strong appetite for Malaysia as evidenced by the sharp gains seen in the local market when Datuk Seri Anwar Ibrahim was appointed as Prime Minister which ended the political impasse. The rally was broad-based across sectors and driven by both domestic and foreign inflows suggesting that investors are willing to relook at Malaysia again for opportunities.