Analysis of Malaysia General Election (GE) Results VS KLCI

PETALING JAYA (Dec 21, 2012): There is little correlation between stock market rallies and general election (GE) results in Malaysia, said M & A Securities Sdn Bhd, based on its examinations of the past six election results.


"Based on the results of the percentage of seats that the incumbent government Barisan Nasional (BN) won in the previous six elections in Malaysia and the performance of the FBM KLCI, there has been low correlation of only 0.4 between the performance of the stock market and the results of the GEs," said the research firm in a report on Wednesday.

"Therefore, we can surmise that the performance of the stock market does not have much bearing on the outcome of GEs in so far as the BN is concerned."

M&A Securities said this also means the "feel good wealth factor" from a good stock market performance does not necessarily translates into a better election performance for the incumbent BN government.

"If we examine the past six GE results, the percentage of BN Parliamentary seats have been swinging between one GE to the next GE from the high to the low and the low to the high and so it has been repeated.



"Therefore, the "pendulum theory" whereby election results see-saw between high and low from one GE to the next GE has more proof to it than the theory that a good stock market performance will translate into a strong incumbent government BN performance in the upcoming GE," it added.

M&A Securities recalled that 2008 was an isolated incident where a bad stock market performance preceded the worst GE outcome for BN since 1969.

"In 2008, the stock market was down 9.7% year-to-date as at March 7, 2008 prior to the March 8 GE. That year, the BN had its worst outcome in the election where it was denied its customary two-thirds majority and won only 63% of parliamentary seats.

"However, one outlier does not proof that a bad stock market performance preceding a GE will lead to a bad GE result for the incumbent government BN," said M&A Securities.

"Similarly, in 1986, when the FBM KLCI was down 4.6% as at Aug 1 1986 prior to the Aug 3 GE, the BN had one of its best performances with 86% of the parliamentary seats," it added.



M&A Securities noted that the FBM KLCI has year-to-date performed well in 2012, in line with regional bourses.

"This year, the FBM KLCI has rose 7.8% as at Dec 13.

"How the stock market will perform in the first quarter of 2013 is debatable as the fund managers may want to re-balance their portfolio from the high beta stocks, which are laden in the FBM KLCI 30 index weightage, into the low beta stocks such as plantation, oil and gas and consumer stocks which have less constituents in the FBM KLCI 30 index and therefore, this strategy may not push the FBM KLCI by much but may either push it down or sideways," it said, adding that 13th GE is likely to be held in March or April next year.

-- TheSun