PETALING JAYA: The equity market is expected to remain resilient, though investors should brace for increased volatility following the outcome of the Johor state election, where Barisan Nasional (BN) secured a stronger-than-expected victory, prompting expectations of an earlier 16th General Election (GE16).

Analysts, however, view any politically driven weakness as a buying opportunity, rather than the start of a prolonged downturn.

CIMB Research, which noted that the Johor state election outcome exceeded the pre-election consensus of 40 to 45 seats for BN, said the stronger-than-expected mandate is unlikely to trigger a significant near-term market reaction.

Rather, it could bolster confidence in Johor’s investment agenda.

“While we expect limited immediate market impact, the stronger mandate reinforces expectations of policy continuity and supports the continued implementation of Johor’s investment and infrastructure plans,” the research house said.

CIMB Research added that the result improves visibility over the formal unveiling of the Johor-Singapore Special Economic Zone (JS-SEZ) blueprint in the fourth quarter of financial year 2026 and continued progress on the RM7bil Johor Rapid Transit project.

It expects the JS-SEZ rollout and the commencement of Rapid Transit System services, targeted for early 2027, to support medium-term demand for landed residential, industrial and logistics developments in Johor, although it remains cautious on the high-rise residential segment due to the large supply pipeline.

As such, CIMB Research continues to favour UEM Sunrise Bhd

as its preferred Johor property exposure, citing its extensive landbank in Iskandar Puteri.

It also sees Eco World Development Group Bhd

, Mah Sing Group Bhd

, Sunway Bhd

, SP Setia Bhd

and Malayan Cement Bhd

as well-placed to benefit from Johor’s investment and infrastructure pipeline.

While CIMB Research sees policy continuity as a positive, Apex Research believes the election has intensified expectations that GE16 could be called earlier, increasing the likelihood of heightened market volatility in the second half of financial year 2026.

“From a market perspective, the Johor election outcome remains negative.

“The prospect of a general election typically prompts investors to price in higher political risk premiums and policy uncertainty.”

However, the research house does not expect the weakness to be long-lasting, noting that resilient domestic demand, sustained infrastructure and data centre investments, improving technology exports and stronger corporate earnings should continue to support Malaysian equities.

“Accordingly, we are maintaining our FBM KLCI year-end target of 1,787,” Apex Research said. We continue to view election-related weakness as a buying opportunity.”

Moreover, following the Johor state election, attention is now shifting to the Negri Sembilan state election on Aug 1.

“Investors should, therefore, expect domestic political developments to become an increasingly important driver of Malaysian market sentiment over the coming months,” said the research house.

Hong Leong Investment Bank (HLIB) Research also expects politics to remain a key overhang for equities.

“BN’s Johor landslide has raised the prospect of an earlier GE16, while the upcoming Negri Sembilan polls and potential Melaka polls (term expiring in December 2026) may further elevate political uncertainty,” HLIB Research said.

“The higher risk premium could keep upside capped and prolong FBM KLCI consolidation,” it added.

In the 16th Johor state election held last Saturday, BN strengthened its mandate by winning 48 of the 56 seats contested, up from 40 seats in 2022, securing a two-thirds majority. Pakatan Harapan won the remaining eight seats. Moreover, GE16 must be held by February 2028.

One analyst told StarBiz that while political developments could continue to drive short-term market sentiment, investors are ultimately likely to refocus on earnings growth, economic fundamentals and the pace of infrastructure execution.

“Those factors should remain the primary determinants of equity performance over the medium term,” he argued.