SINGAPORE (May 21): The Malaysian stock market reacted far better than initial prognoses by most market analysts, on the heels of the shocking — though not wholly unexpected, if the mini rally for certain stocks during the week of May 7 is any indication — defeat of the long-ruling coalition, Barisan Nasional (BN), in the 14th general election. Even the ringgit is holding up fairly well, especially considering the external backdrop of a strengthening US dollar and rising Treasury yields.

To be sure, Bursa Malaysia saw increased volatility when it resumed trading on May 14. There was a huge 79-point swing intraday, but market breadth was broadly positive on the back of brisk trading volume of 6.62 billion shares. The FBM KLCI ended the day 3.9 points higher.

We attribute this show of confidence to the swift, decisive actions taken in these early days, including the setting-up of the five-member Council of Eminent Persons to guide the crucial 100-day transition period. The council is tasked with drawing up and recommending institutional and economic reforms to the new government. One of its first moves has been to set up an institutional reforms committee.

Confidence was likely further bolstered by the quick announcement of three key cabinet ministers — for the finance, defence and home portfolios. A functional cabinet of key ministries is expected by the end of the week.

Despite the inevitable uncertainties, the smooth transition of power and quick actions have clearly earned the Malaysia government the benefit of the doubt.

Having said that, we did see heavy selloff in a handful of stocks. Construction stocks, in particular, were heavily sold off across the board, given that the new government has promised a review of all mega infrastructure projects — which should include the East Coast Rail Link, Kuala Lumpur-Singapore High Speed Rail, MRT 3 and Gemas-Johor Bahru double-tracking rail project.

Of note, though: Shares for companies that are perceived to be more professionally run — the likes of Gamuda and Econpile Holdings — steadied quickly after the initial selloff. Should these mega projects be delayed or aborted altogether, prospects for order book replenishment may be negatively affected. So, their share price drops are rational and reasonable. But at the end of the day, it would not undermine the companies’ underlying strength, which is based on expertise and experience.

In fact, the worst-affected stocks were those perceived to be closely linked to BN and that had benefited (or will benefit) from lucrative government concessions and contracts.

Proprietary day trader and intraday short-selling activities for My E.G. Services, George Kent (M), Excel Force MSC and Gabungan AQRS were suspended on May 15. The next day, Bursa went further, freezing the lower limit price for MyEG and George Kent after both stocks traded limit down for the previous two consecutive days.

We also looked at the other end of the spectrum, at the stocks that had rallied. Since we are quite sure that their underlying businesses have not changed drastically overnight, the only explanation is that the perception of close inter-relationship between politicians and businessmen — despite everything that has happened — remains well and alive.

With the promised reforms and endemic corruption practices addressed, it is hoped that rent-seeking would no longer be promoted.

We made several transactions for the Malaysian Portfolio in the week of May 14. On the one hand, we halved our holdings in Choo Bee Metal Industries, given the prevailing uncertainties in the construction sector.

On the other hand, we recycled the proceeds and put all our remaining cash balance to work — by acquiring shares in Malayan Banking, Pantech Group Holdings, Panasonic Manufacturing Malaysia (Panamy) and SCGM.

Maybank, Panamy and SCGM should benefit from rejuvenated business and consumer confidence as well as consumption spending once the Goods and Services Tax is reduced to zero (starting June 1, 2018).

Meanwhile, Pantech is a good proxy for rising oil prices. Brent crude is now hovering just a shade below the US$80 per barrel threshold, compared with the average of US$55 per barrel last year. (For more information on these companies, visit www.absolutelystocks.com

After taking into account all the above, the portfolio is now, once again, nearly fully invested. This is our vote of confidence for the new administration.

Total portfolio value gained 4.2% from the last update on May 3, performing better than the FBM KLCI’s 0.1% advance. 

The gains lifted total portfolio returns since inception to 66.8% — again, well ahead of the benchmark index’s 1.4% increase over the same period.

We acknowledge that short-term earnings could still be weak, but we believe the market will be driven more by positive expectations for the longer term.

Malaysia has never been happier, more ­united and confident.


Tong Kooi Ong is chairman of The Edge Media Group, which owns The Edge Singapore

Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.

This article appeared in Issue 831 (May 21) of The Edge Singapore.

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