Election Rally On The Cards?

Since reaching a record high of 1,524 on 14th January 2008, Malaysia's Kuala Lumpur Stock Exchange has since corrected by about 10% to the current level of 1,370. After the Lunar Chinese New Year celebration which just ended a few days ago, Malaysia has entered into a frenzy election climate as the country gets ready for her next general election on 8th March. I now could see banners of political parties hanged around almost every corner of the streets. It signals the start of more political and election campaigns being held at all districts for the next 13 days or so.

On the other hand, the stock market has been on a downward fall, just like any other major global stock market indices. There is one little good news amidst the current gloom and doom, sparked by the sub-prime and financial crisis in the US, that is, Malaysia stock market has been hit less compared to the other major Asian bourses such as Shanghai, Hong Kong and Singapore.


The main reason for KLCI's resilience relative to other regional markets is related to Malaysia being a major producer (second largest in the world) of Crude Palm Oil (CPO), which have been hogging the lime light for much of 2007 and 2008, as a result of it's record pricing performance, thanks (or no thanks?) to the sky rocketing crude oil prices (which have surpassed USD100 per barrel). Recall that all major commodities have become the safe-heaven of global investors amidst the current turmoil in global equity and US housing and financial markets.

So, what's in store from now leading to Malaysia's election on 8th March? Is there going to be a so-called election rally to instill an even better "feel-good" factor into the pockets of the people of Malaysia? "Traditionally, Government-linked stocks may be given a "lift" prior to election (although this is definitely not a cast-in-stone factor). Will this trend repeat by itself?

Unfortunately, it appears THERE WON'T BE ONE this time around! First and foremost, foreign funds seem to be on a gradual withdrawal mode since financial liquidity is on a tighter rope these days due to the financial turmoil back in US and many other countries of origin with exposure to the sub-prime. Moreover, lower tolerance of risks may also tempted funds to reinvest their money into other safer means such as commodities or cash instruments. Based on the above, overall sentiment has definitely been affected. Secondly, since the announcement of general election, share prices of many Government-linked stocks (such as MRCB) have in fact fallen by a large degree (a case of sell on fact?) in line with the general market trend. Thirdly, it could well be a myth to believe such a pre-election rally.


From the data above, an average of 1.9% rise 2 weeks before general election over the past six occasions could hardly argue a firmer stance against the statistics.

What's your view? I welcome any feedback.