The 14th Malaysian general election (GE14) will elect members of the 14th Parliament of Malaysia on or before 24 August 2018. The 13th Parliament of Malaysia will automatically dissolve on 24 June 2018. The Constitution of Malaysia requires that a general election to be held in the fifth calendar year unless it is dissolved earlier by the Yang di-Pertuan Agong due to a motion of no-confidence or at the request of the Prime Minister.

The following table shows the historical results of past elections. The notable election year was 2013 whereby it was the first time the incumbent governing party lost its 2/3 majority in the parliament as well as popular vote.

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Looking into the past…..

As the past may be a good predictor of the future, I intend to take a quick look at the past 5 general elections of Malaysia (GE9 – GE13) to generalise possible common patterns (pre, during and post elections) of KLCI index.

GE9 : 1995

GE9 was held prior to the Asian Financial Crisis (in 1997-1998). It was a relatively good year for the incumbent governing party, winning 84.38% of total parliament seats. Prior to dissolution date on 6 April 1995, there was a significant decline in between Q3 1994 and Feb 1995. The KLCI index recovered lost grounds when approaching the dissolution date (this may be termed as ‘pre-election’ rally’). Post-election date, the KLCI continues to make positive upward trajectory.

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GE10 : 1999

GE10 was held after the Asian Financial Crisis and the political fall-out between Anwar and Mahathir. In view of prevailing uncertainties, there was a general decline in FBMKLCI prior to the dissolution / election dates (similar to GE9). Post-election (after Mahathir managed to solidify his position), there was a significant spike in KLCI before the index reached its tipping point around end Q1 2000.

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GE11 : 2004

The was a change in leadership in the incumbent governing party, when Badawi replaced Mahathir as head of the governing party in this election. In contrast to GE9 and GE10, there was much optimism (i.e positive upward trend) in the KLCI index prior to the dissolution / election dates. Post-election date, the optimism watered down as the index reversed downward.

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GE12 : 2008

Facing a unified opposition front, the incumbent governing party is expected to face stiff challenges in this election. KLCI’s upward trajectory reversed to negative territory nearing the dissolution date. In the period of between dissolution and election dates, the KLCI  actually dropped significantly, reflecting the expectation that incumbent governing party will perform poorly in GE12. Post-election index, there was a significant drop in the KLCI index, reflecting growing uncertainties in the Malaysian political scene.

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GE13 : 2013 (“The Notable Year”)

KLCI index was in range bound prior to the dissolution date. As the expectation that incumbent governing party may lose GE13 did not materialise, there was a huge gap-up immediately after election date.

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So, what are the common patterns / trends?

  • We should anticipate some level of positive movement (based on historical median about 2.89%), 3 months prior to the dissolution date (except for GE13 – the index was in a range bound prior to dissolution)
  • In period of between dissolution and election date, we should expect a range bound scenario with a marginal positive bias (with the exception for GE12 which saw a huge major decline in days leading up to the election date)
  • First trading day after election date is generally negative which could be a possible reversal of effects from pre-election rally (except for GE13 which saw the incumbent governing party managed to form government despite strong expectations that governing party may lose the GE)
  • A month after the election date, the KLCI is generally in a positive territory (except for GE11)

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The movements in the KLCI index will be very much influenced by developments in political sentiment. Nevertheless, one may infer that if there are significant positive movements prior to dissolution and election dates, we may anticipate some level of reversal (i.e negative movements) post election date and vice versa.

What about GE14 (2018)?

  • Given the recent rise and positive sentiment, KLCI has largely taken into account that the incumbent governing party is expected to win the GE14
  • Nevertheless, assuming that GE14 is held in between March and April 2018, if KLCI consolidates at around 1,830-level (post-parabolic upward movement), would we potentially see a sharp downward reversal post election date?
  • A point to note is that we have never tested / experienced a situation of which the incumbent governing party loses a GE. The impact of such scenario on KLCI is unthinkable.

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