Investvine-Apr 16
Even though surveys predict that Malaysia’s Prime Minister Najib Razak will be returned to office in the country’s general elections on May 9, investors are bracing for a range of possible outcomes. It can be seen in the drop of the value of the ringgit this month as uncertainty increases before the vote. The nation’s ten-year bond yields also climbed to the highest level in a month last week.
However, Razak is hoping the strongest economic growth in three years will help his ruling coalition improve on the previous election in 2013 when its share of the popular vote dropped below 50 per cent for the first time.
The opposition Pakatan Harapan led by former Prime Minister Mahathir Mohamad aims to take advantage of voter disaffection caused by rising living costs and financial scandals surrounding the government.
Fund managers and analysts have been discussing the following possible outcomes, according to Bloomberg. A victory for the ruling coalition will be a net positive for Malaysian assets as the market wants to see political continuities. The ringgit may strengthen as much as 1.5 per cent.
In case of hung parliament after the polls, a volatile environment would be the result. However, most investors would hold on to their positions as Malaysia is perceived to stand on a solid economic footing and a protracted period of political negotiation would not necessarily be bad for the economy.
A victory of the opposition would be negative for the markets in the short term, although the focus will also be on the country’s economic fundamentals. It would, however, be seen as a huge surprise to the market, which initially may result in a weaker ringgit. Also, in Malaysia, the opposition has not yet governed the country in the past, and that is another uncertainty for investors, but not necessarily negative.
