Petaling Jaya: A change in the Federal Government could result in the withdrawal of key portfolio funds and the local bourse being in limbo for up to six months, say fund managers and analysts.
They said market stability would only be restored if and when the new administration comes out with clear and firm policies.
Eastspring Investments Bhd Chief Investment Officer (Equities) Yvonne Tan Hong Yean had cautioned that foreign funds might opt to stay out of Malaysia if there was a change in the government after the general election.
Tan said at the Malaysian Equity and Bond Outlook for 2013 presentation on Monday that the market would be quite positive with the country's economy set for a 10% growth next year in terms of earnings from listed companies, if there was no change in the ruling government and the incumbent Prime Minister.
"However, if a new government comes into the picture, there will be a lot of uncertainty," she added.
Tan also noted that Malaysia was still on a growth path with the third quarter of this year notching 5.2 % year-on-year better than market expectation, adding that Gross Domestic Product growth forecast for 2013 was between 4.5% and 5%.
Speaking to Starbiz, Tan reiterated that the market was "nervous" and that there was already "a lot of selling".
Tan said among other things, the concerns of foreign investors stemmed from uncertainties over whether the ideas and policies of the Opposition would be market-friendly.
For example, she said new policies might lead to a review or stalling of some of the on-going mega projects, such as tolled highways.
Tan said most foreign investors might opt to stay out of Malaysia until they got a clearer picture of things.
"Based on other countries where new governments had performed well, it has been positive for the market in the longer term. Over the short term, however, it is usually negative," she said.
Fortress Capital Asset Management (M) Sdn Bhd chief executive officer Thomas Yong said: "It is certain that the Opposition has no track record governing the Federal Government. So we shall have to wait and see."
Yong noted that it was almost a certainty that hot money would flow out of the country, but added that it would not be a big percentage of the total investments.
"Furthermore, the bulk of hot money is parked in Malaysian Government Securities."
TA Securities Holdings research head Kaladher Govindan said portfolio and long-term foreign funds currently made up about 21% of the total volume of Bursa's monthly trade.
As such, he said a win by the Opposition would see some significant downside to the market, adding that the market could be expected to be stagnant for between three and six months.--Courtesy of The Star Online