KUALA LUMPUR (June 25): The upcoming election-related uncertainty may present appealing entry opportunities for long-term banking stock investors, particularly if share-price softness is not aligned with underlying fundamentals, TA Securities said.

In a Thursday note, the research house noted that the banking sector, one of the most widely held Malaysian equities by domestic and foreign investors alike, may face periods of political uncertainty amid rising party tensions alongside Prime Minister Datuk Seri Anwar Ibrahim’s hints of a general election as near as July.

Traditionally, Malaysia’s banking sector served as proxies for the economic and political sentiment, with the sector representing a third of the FBM KLCI’s market capitalisation.

“Historical evidence suggests that foreign investors typically accumulate Malaysian banking stocks in the pre-election period, then reduce exposure once political uncertainty peaks,” TA Securities reported.

With Malaysia’s current macroeconomic and political climate fragmented and competitive, TA Securities has downgraded its rating for the banking sector to 'neutral' from 'overweight', with the price-to-book valuation cut to 1.17 times from 1.25 times, and 1.12 times
from 1.2 times for 2026 and 2027 respectively.

The research house said that despite the resilient earning fundamentals of local banks, political uncertainty has led to investors requesting higher risk premiums, which further led to compressions of valuation multiples.

Notably, the 13th and 14th general elections alike saw banks experience sharp foreign outflows post elections despite an initial rise in the foreign shareholding of large-cap banks. 

“Notably, the KL Finance Index also experienced a sustained decline in the aftermath, consistently underperforming the broader FBM KLCI,” said TA Securities.

TA Securities has chosen Public Bank Bhd (KL:PBBANK) as its current stock pick with a target price of RM5.36, with its strong capital position and defensive earnings characteristics making it an investment less sensitive to the political climate.