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Thursday, March 13, 2008

Are changes in store post-election?

An artist’s impression of Penang Global City Centre, one of the projects which may face uncertainty following the recent election results

PETALING JAYA: Is further volatility in store for the main stock index as business confidence takes a beating in view of not only a change in the makeup of the 12th Parliament but also in the legislatures of the more economically important states and in the Federal Territory?

On Monday, following the general election of March 8, the KL Composite Index (KLCI) fell 123.11 points, or 9.5%, to close at 1,173.22, wiping out RM86bil, or 8.7%, from the bourse's total market capitalisation of RM984bil as at March 7.

The selling also saw a temporary halt in trading mid-afternoon when the circuit breaker installed by Bursa Malaysia in March 2002 was triggered after the KLCI fell 10% from its previous close on March 7.

Big-cap stocks with high foreign shareholding as well as plantation and construction stocks were among those that saw their share price fall on that day.

A number of the companies whose share prices dropped that day were either government-related or involved in projects approved by the Government.

However, the plunge in the KLCI was also in tandem with the fall in the main indices of major Asian bourses, which reacted to Wall Street's fall last Friday following a US government report that showed a widening trade deficit gap for January due to the high price of crude oil, which surpassed US$109 per barrel in electronic trading and settled on a record US$108.75.

Besides oil, crude palm oil has also seen movement in prices, this time downwards. It was trading near RM4,500 a tonne not too long ago but is now hovering between RM3,300 and RM3,400.

Political analyst Francis Loh Kok Wah, who is an associate professor at Universiti Sains Malaysia, told StarBiz the wave of selling on Monday was a knee-jerk reaction compounded by problems in the US.

He said if any Government projects were to be reviewed, it would be due to the process in the award of contracts.

“If it were through closed tenders, executive fiat or due to a corporation's political connections, then a review is justifiable,” he said.

Loh said the development corridors did not need to go through any form of parliamentary process.

“As I understand it, these corridors do not need it unless there're questions arising over issues like the environmental impact,” he said.

Universiti Kebangsaan Malaysia political science department head Dr Ahmad Nidzammudin Sulaiman said if there were to be any impact on government-linked companies, it would not be direct but through less federal budget allocations for states under non-Barisan Nasional (BN) administration.

»If the award of the contracts were through closed tenders, executive fiat or due to political connections, then a review is justifiable«PROF MADYA FRANCIS LOH KOK WAH

A lower budget allocation for these states would mean fewer projects for government-linked companies.

He said this was going by past trends when Sabah was under Parti Bersatu Sabah, then an opposition party and with the present situation in Kelantan under Parti Islam SeMalaysia.

Citi Research analyst Zheng Kit Wei said in a research note that in the near term, the election results would likely be unsettling for equity and currency markets on fears of greater political instability, which may provide a good reason for profit taking by foreign equity investors.

“There is also more uncertainty over the future of the Northern Corridor Economic Region with Perak, Kedah and Penang now in opposition hands,” he added.

Zheng said it was too early to tell whether this would mark the start of a steady slide of BN dominance or whether the results would serve as a wake-up call for it.

By The Star (by Fintan Ng)

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