This article first appeared in Capital, The Edge Malaysia Weekly on November 15, 2021 - November 21, 2021

NOW that the Sarawak State Legislative Assembly has been dissolved, making way for a state election, market attention has turned to Sarawak-linked stocks on Bursa Malaysia.

On Nov 3, Yang di-Pertuan Agong Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah consented to the revocation of the Proclamation of Emergency for Sarawak, but the Election Commission has yet to announce the polling date.

Even so, analysts do not anticipate a rally in Sarawak stocks, as share prices have seen no significant movement since the dissolution because investor sentiment has turned tepid.

Victor Wan, head of research at Inter-Pacific Securities, thinks this is partly due to the cautious market environment following the negative surprise from Budget 2022, primarily the implementation of a prosperity tax and the stamp duty hike for share trading.

“If there is a rally, it will be very minor, maybe just a one- to two-day play. Announcements from the budget are overriding … We are not seeing a lot of market volume and now it has gone back to the pre-Covid level.

“With a daily trading volume of about three billion shares, it is not going to have much impact and it will be difficult for any stocks to rally,” he tells The Edge.

Another industry observer, who declined to be named, concurs, as he sees no catalyst that can lift the stock market in the short term.

“The market condition is going to be tough; there is no impetus at all. Right now, investors are looking for the next catalyst. Corporate earnings are not expected to look exciting next year, owing to various reasons, including a slowdown in the global economy,” he says.

“Inflation and global supply constraints are the other problems. All these issues will dampen the market condition for at least another three to four months. It could take one to two quarters before things can recover.”

According to Kenanga Research head Koh Huat Soon, there is no visible historical pattern for the individual stock’s performance in the run-up to election day, based on the past three state polls in 2006, 2011 and 2016.

Also, the closer to polling day, overall returns turned out more mixed, possibly swayed by election outcome jitters.

The research house’s analysis shows that the most profitable investment period was the six months leading to the election dates, with average returns of 6.3% in 2006, 7.6% in 2011 and 2.6% in 2016.

That said, a better alternative is to analyse each stock individually, as their share prices would have been driven by their respective stock fundamentals.

The key takeaways show that, in 2011, only Bintulu Port Holdings Bhd provided positive returns for all time periods (one day, one week, two weeks, one month, three months and six months before the polling day), with an average return of 2.9%.

In 2016, Quality Concrete Holdings Bhd and Sarawak Plantation Bhd recorded average returns of 8.2% and 4.1% respectively, and were up for all the time spans.

Bintulu Port and Kim Hin Industry Bhd registered gains in five of the six time periods. Their average returns were 1.8% and 0.7% each.

It is worth noting that these stocks did not manage to sustain their gains post-election. Quality Concrete saw an average negative return of 13.4% for all time periods, followed by Sarawak Plantation (-7.3%), Kim Hin (-7.2%) and Bintulu Port (-1.6%).

Areca Capital Sdn Bhd CEO Danny Wong believes the share prices of Sarawak counters have mostly priced in the announcements. Moreover, he thinks there will be no additional big infrastructure projects in the state.

“Despite development expenditure injection by the government, there are no new catalysts for Sarawak-based companies,” he says, noting that if there had been any significant project proposed, it would have been announced in the budget.

Under Budget 2022, the government will inject RM4.6 billion in development expenditure into Sarawak, bringing the total development allocation for the state to almost RM12 billion. With that, Chief Minister Datuk Patinggi Abang Johari Tun Openg says Sarawak can afford to spend about RM1 billion a month to support development in the state next year.

Loui Low, head of research at Malacca Securities, is still hopeful of a boost in Sarawak-linked stocks in the run-up to polling day, as he believes there are opportunities “to push Sarawak counters in the near term”.

They include Cahya Mata Sarawak Bhd, Hock Seng Lee Bhd, Zecon Bhd and TRC Synergy Bhd, says Low, who believes investors are merely taking a breather at the moment, as they had been active before the budget.

“Market sentiment is quite bad right now. Perhaps there will be a rally leading to the election. So far, it has not happened yet. Hopefully, the year-end window-dressing period will also help lift market sentiment,” he adds.

So far this year, most of the Sarawak counters have registered negative returns.

Sarawak Consolidated Industries Bhd (SCIB) is the top loser, as its share price has tumbled 85.6%. Trading in shares of the precast concrete product maker has been suspended since last Tuesday after it failed to submit its annual report. Earlier, Bursa Malaysia had rejected an application for an extension of time until Dec 31 to do so.

Last Wednesday, SCIB also announced that it had terminated six engineering, procurement, construction and commissioning contracts in Qatar and Oman to mitigate risks arising from long-overdue debts owed by its clients.

Two other Sarawak stocks that have lost considerable ground since early this year are Cahya Mata Sarawak, which has shed a third of its value, and Jaya Tiasa Holdings Bhd, by a fourth.

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