Sarawak Play - Too Few
A Few Good Men (Stocks)

Avenue Securities came out with an interesting research report on potential run-up in Sarawak state stocks, particularly politically linked ones, in the coming months in the run up to the impending state elections. Avenue Research said based on the satisfactory performance of Sarawak-based stocks in the past three state elections, it expects buying interest in selected stocks to start building up in the next six to nine months as speculation on the date of the upcoming state election intensifies. “Excluding the state election in 1991, share prices of Sarawak-based stocks appreciated by, on average, 15%, six months before the election day and another 20%, six months thereafter (or 35% in total),” it said. While there was no clear trend in the 1991 state election, those in 1996 and 2001 showed a pattern whereby the average Sarawak-based stocks performed strongly before and after the election day, Avenue Research said. “We believe the stronger performance of Sarawak-based stocks in 1996 and 2001 was mainly due to investors’ confidence that the ruling state government will win by a substantial margin,” it added. The research house said the current lacklustre trend of Sarawak-based stocks could reverse as buying interest starts to emerge over the next three to six months. “We estimate there are at least 32 Sarawak-based companies that are listed on Bursa Malaysia – notable ones include Naim Cendera, Ta Ann, Jaya Tiasa, Weida, Zecon and Lingui,” it said. The research house also expects Sarawak to get a bigger development allocation in the upcoming 9th Malaysia Plan (9MP) because a higher allocation is “crucial” for the approaching state election. “While consensus is expecting the 9MP to announce lower total national development expenditure allocation of about RM150 billion (8MP: RM170 billion), representing a decline of 12%, we reckon that the allocation for Sarawak could still grow by at least 2% (or RM175 million),” it said. The construction sector would stand to benefit from this as Sarawak aims to be a developed state, leading to greater requirement for new roads and infrastructure, better healthcare, airports and ports facilities and water supply, it added. Avenue Research said it was recently revealed that Sarawak would be getting RM5.5 billion of the RM55 billion allocated for the federal government’s works ministry under the 9MP. “Out of the RM5.5 billion, RM2.9 billion is for new projects and the rest (is) for those projects carried forward from the 8MP,” it added.

My take: It is unlikely to happen in a big way this time around, the way it did in 1996 and 2001 - back in 1996, we were still in the midst of a long term bull cycle (93-97), and any theme was welcomed to play up selected group of stocks, investors were more trigger-happy with any hint of rumours to base their stock selections on; in 2001, the market was short of market-themes, and the run up wasn't that terrific to speak of. If you were to check the few stocks noted by Avenue Securities - they are either too small (paid up) or have traded very little for an extended period, both not good indicators. Among those cited (Naim Cendera, Ta Ann, Jaya Tiasa, Weida, Zecon, Lingui), none are that hot profit-wise with the exception of Ta Ann Resources (but that is nearly a RM6.00 stock already). Lingui did not even budge much during the hot period for palm oil stocks, so go figure. However, I do agree with Avenue Securities that there will be some stocks that will move that are linked closer to the elections in Sarawak. (Read Below).

However, if you read my blog on January 30 on "Time To Move From Sarawak", you will find some stocks that should move with the Sarawak themd-play. They are strong on political ties, good paid up, and can capture invetsors' imagination. Not that I am strongly recommending them, but for those who want to have something linked with Sarawak play, then consider them.

Cahaya Mata Sarawak (RM1.00)
Press Metal (RM0.375)
MMC (RM2.15)

Of the 3, I prefer Press Metal, as it is smaller, will move faster, and even without the Sarawak linkages, it is a well run and profitable company. The absolute price of Press Metal is also low enough to attract a greater group of speculators. .... but I thought we should all move from Sarawak!!??