KUALA LUMPUR - The second round of quantitative easing by the US, better known as QE2, is seen as the main force driving liquidity into Asian equities this year.
But closer to home, another acronym — GE13, the 13th general election — may well shape up to be a more exciting catalyst for investors on the local bourse.
Indeed, the election play is expected to be one of the main investment stories this year and analysts are already betting on which stocks will ride on the theme.
Although the dates of the Sarawak state election and 13th general election have not been announced, speculation is rife that they will take place by the first half of the year.
The last Sarawak state election was held in May 2006, with the next one due by mid-2011.
Malaysia’s last general was held in March 2008, with the next one due in 2013. However, many expect it to be held this year — either after or concurrently with the Sarawak state election.
Barisan Nasional’s (BN) success in the Tenang by-election on Jan 30, has bolstered the ruling coalition’s confidence further, with Deputy Prime Minister Tan Sri Muhyiddin Yassin saying that BN is ready to face the general elections anytime.
All eyes will now be on the Merlimau by-election on March 6, for further confirmation of the BN’s rising support.
Regardless of the timing, analysts are already toying with election plays and have named stocks that are expected to rally on the theme.
Maybank Investment Bank, for one, believes that, based on historical trends, there are plenty of stocks that offer trading opportunities in a pre-GE rally.
Interestingly, the research house says past GE trends imply that gains must be locked in on the announcement of a GE, which supports the popular adage “buy on rumour, sell on fact”.
Maybank IB notes that the market rallied in periods prior to previous GEs, with gains of at least 9% in the two months before polling day during the 1999 and 2004 elections.
During the last GE in March 2008, the market rallied, supported by a strong inflow of foreign funds.
The benchmark KLCI peaked on Jan 14, 2008 at 1,525 and started to trend down until the dissolution of parliament on Feb 13, and polling on March 8.
Maybank IB says that since 1998, several large public-listed companies have been “de-linked” from ruling parties and political figures.
It notes that, at present, political parties hold few direct stakes in listed companies. Examples include media companies such as Utusan Melayu (M) Bhd, which is 49.8% owned by Umno, and Star Publications (M) Bhd, which is 42.4% owned by MCA.
For the media sector, Maybank IB says its pick for the election theme is Media Prima Bhd by virtue of it being a potential beneficiary of the government’s advertisement spending.
Be that as it may, during the 2008 GE (when the BN won a simple majority), not all election-theme stocks gained significantly. Some even plunged.
Equine Capital Bhd’s shares, for instance, lost 24% in the month leading to the dissolution of parliament on Feb 13, 2008. Equine’s main shareholder and chairman, Datuk Patrick Lim Soo Kit, was said to have close ties to former premier Tun Abdullah Badawi.
Where some lost ground due to the elections, others gained.
Maybank IB notes that in the three months leading to Feb 13, 2008, MTD Capital Bhd and Star Publications gained around 5%. TRC Synergy Bhd, which is said to be linked to Umno, rose 10%.
MTD Capital, which is currently undergoing a privatisation exercise, is 55.6% owned by former deputy works minister Datuk Nik Hussain Abdul Rahman.
Stocks such as KUB Bhd, Boustead Holdings Bhd and DRB-Hicom Bhd lost at least 10% over the three months in 2008.
Past trends certainly show that elections have a definite bearing on the performance of these counters.
This year, other stocks that are considered by analysts to be elections plays include government-linked companies like UEM Land Holdings Bhd and TimedotCom Bhd.
Investors may also want to monitor Puncak Niaga Holdings Bhd. Puncak Niaga holds 70% of Selangor’s water distributor Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), which is the take-over target of the state government.
It is also worth noting the federal government has a golden share in Syabas.
Puncak Niaga, in turn, is controlled by Tan Sri Rozali Ismail, who is said to have close ties to Umno, the lead member of the ruling BN coalition, which used to rule Selangor before the Pakatan Rakyat coalition came into power.
Meanwhile, OSK Research recently said Tenaga Nasional Bhd is an ideal post-election play as it sees the power company securing its long overdue tariff hikes.
The initiatives under the Economic Transformation Programme (ETP), the pet project of Prime Minister Datuk Seri Najib Razak, as well as the development of government land that will add a feel-good factor to the upcoming elections will further support the rally of selected construction and property counters.
OSK Research, for one, estimates a total of RM18 billion worth of domestic jobs will be dished out this year, up 18% from some RM15.3 billion last year.
The researc house’s favourite picks from the construction sector include big caps like Gamuda Bhd and mid caps like Ahmad Zaki Resources Bhd (AZRB).
It has a “buy” calls on Gamuda with a target price of RM4.78 and AZRB with a target price of RM1.55.
Gamuda closed yesterday at RM3.90, and AZRB at RM1.16.
Meanwhile, Maybank IB expects Malaysian Resources Corp Bhd (MRCB), IJM Land Bhd, Mah Sing Bhd, Glomac Bhd and Bolton Bhd to be the beneficiaries of government land development.
Berjaya Land Bhd is also a stock to watch, as it is potentially one of the developers of a large tract of land in Sungai Besi. Last year, it proposed to purchase a 255-acre tract of leasehold land in Sungai Besi from the Selangor Turf Club for a total of RM640 million.
Similarly, Boustead Holdings Bhd and UEM Land are other counters that are expected to benefit from the development of government land.
Boustead is expected to develop the land where the Batu Cantonment army base sits and UEM Land is widely expected to develop sites in Singapore’s Marina South and Ophir Rochor, which are 60% owned by Khazanah Nasional Bhd and 40% by Singapore’s Temasek Corp.
- The Edge
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