KUALA LUMPUR: Bursa Malaysia's stock indexes managed to pare back some of its losses over the afternoon session but ultimately finished the week on a low note, most likely influenced by the impending state elections that are scheduled to be held tomorrow.
At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 1.71 points to 1,457.16 from 1,458.93 at Thursday's close.
There were 502 gainers, 382 losers and 429 counters traded unchanged on the Bursa Malaysia while turnover was at 2.940 billion shares valued at RM1.863 billion.
While state elections in Malaysia traditionally do not have strong bearing on the market, however due to the precarious relationship between Barisan Nasional (BN) and Pakatan Harapan (PH), the current round of election serves as a litmus test of the alliance, said Tradeview Capital Sdn Bhd fund manager Neoh Jia Man.
"In the most likely outcome of a status quo - BN-PH retaining Penang, Selangor, and Negeri Sembilan, we anticipate a relief rally next week. Should the incumbent government fail to do so, we believe increasing uncertainties over political stability could weigh on the market," he told the New Straits Times.
The potential outcome of a significant victory for either the PH or BN party in the upcoming election could indeed trigger notable market repercussions. "In such a scenario, we believe Bursa Malaysia could play catch-up to regional peers with its valuation discount to historical average dissipating," he added.
He further explained industries that are dependent on government contracts or heavily influenced by politics, such as construction will likely rerate, while blue chip names that are favoured by foreign investors should benefit from return of foreign inflows.
SPI Asset Management managing director Stephen Innes said the results of these state polls may considerably impact markets as they will decide the direction of the country's politics and overall political and financial market stability.
"Markets generally prefer stability and in this case, a landslide victory for Prime Minister Datuk Seri Anwar's Pakatan Harapan progressively viewed party would be ideal," he said.
However, Anwar faces the challenge of bridging the deepened racial divides since the last election and rebuilding an economy devastated by Covid, said Innes.
"With so much political risk at stake, this election has raised investor concerns. The fear is that opposition parties may gain control of states led by Anwar's bloc or show strength in state polls, leading to questions about PH leadership and potential political instability.
"However, markets do not favour such a situation," added Innes.
Meanwhile, Rakuten Trade Sdn Bhd vice president of equity research Thong Pak Leng said investors are cautious in anticipation of the upcoming release of the U.S. Producer Price Index.
"Looking ahead to next week, we believe that the trajectory of the FBM KLCI will be significantly influenced by the stability of the domestic political environment.
"Nonetheless, we reckon the possibility of bargain hunting activities to emerge due to the cheap valuations of local equities. With that, the benchmark index will trend sideways within the range of 1,450-1,470 for next week with immediate resistance at 1,460 while support at 1,440," said Pak Leng.