Buy CIMB, Sime Darby Ahead of Malaysian Elections, BofA Says

Investors should buy CIMB Group Holdings Bhd. and Sime Darby Bhd. that are seen as shielded from volatility ahead of Malaysia’s general election, according to Bank of America Corp.

Prime Minister Najib Razak dissolved parliament yesterday to prepare for the nation’s 13th general election. The FTSE Bursa Malaysia KLCI Index closed little changed yesterday after plunging as much as 3.1 percent while its 30-day volatility, a gauge of price swings, rose to a one-month high.

“The upcoming election will be very close,” Melvyn Boey and Angeline Ooi, analysts at Bank of America Merrill Lynch, wrote in a report dated April 3. There are “buying opportunities in this volatile period.” They favor “domestic-oriented” stocks that have underperformed the MSCI Asia Pacific ex-Japan Index this year, including CIMB and Sime.

The elections will determine whether Najib’s ruling coalition can extend its unbroken hold on power since the country won independence from the U.K. in 1957. His 13-party Barisan Nasional coalition, which won the 2008 national vote by its slimmest margin, faces a resurgent opposition alliance led by former deputy prime minister Anwar Ibrahim.

Among Bank of America’s other picks are Axiata Group Bhd., AMMB Holdings Bhd., Telekom Malaysia Bhd., SapuraKencana Petroleum Bhd. and Astro Malaysia Holdings Bhd., according to the report.

CIMB Gains

CIMB, the nation’s second-biggest lender by market value, added 0.1 percent in Kuala Lumpur to its highest close since Nov. 1. SapuraKencana climbed 1 percent. Sime Darby, the world’s biggest listed palm-oil producer, rose 0.1 percent. The KLCI gained 0.2 percent to 1,688.46, the highest close since Jan. 9. The gauge earlier touched an intraday record of 1,700.55.

The prospect of the ruling coalition losing seats in the election has helped make the KLCI index Southeast Asia’s worst performing benchmark this year. The gauge has fallen less than 0.1 percent in 2013, compared with the MSCI South East Asia Index’s 5.5 percent gain.

Najib’s approval rating slipped to 61 percent in February from 63 percent in December, according to a survey of 1,021 voters conducted Jan. 23 to Feb. 6 by the Merdeka Center for Opinion Research.

“Any predictions provided will probably lack conviction, especially with the sharp 25 percent increase in first-time voters,” according to the BofA report.

‘Mild’ Weakness

Malaysian stocks are expected to weaken leading to the polling date, as investors price in political risk, Suhaimi Ilias and Wong Chew Hann, analysts at Maybank Investment Bank Bhd., wrote in a report today. The weakness would be “mild” compared with the previous election in 2008 when the KLCI index “corrected” 8.9 percent between the parliament dissolution date and polling day, they said.

“A recent survey indicated that one in every five voters is still undecided, implying that the outcome of the 13th general election may well be decided by this group who are likely to make up their minds at the last minute,” they said.

An unprecedented 2.4 million new voters have been registered between 2008 and 2012, the analysts said.

Investors should stay defensive and buy high-yielding, non-cyclical stocks before the election that’s likely to be held by the end of April, Terence Wong, an analyst at CIMB Group, wrote in a note dated yesterday. Brewery and utility companies, and real estate investment trusts, are preferred pre-election stocks, he said.

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