Malaysia's financial markets have been "very calm" as the country enters election season, with investors apparently concluding that nothing much will change on the political front. But there could be surprises ahead which the markets have not priced in, said Ms Selena Ling, head of treasury research and strategy at OCBC Bank.
"Financial markets are very calm pre-elections," she said at The Straits Times Global Outlook Forum. "On the flip side, this could also mean that any surprises... which are not discounted could potentially contribute to bouts of uncertainty and volatility."
On the plus side, the Malaysian economy is doing well with the ringgit on the rise, equities on an uptrend and strong foreign inflows into government bonds, Ms Ling told the forum yesterday.
The economy is on a strong footing, with gross domestic product (GDP) expected to expand by 5.5 per cent this year, after growing 5.9 per cent last year. Some of the economic boosters include government handouts such as the BR1M cash aid and bonuses to government-linked companies, strong private investments and thriving exports, Ms Ling said.
Malaysia - South-east Asia's fourth biggest economy by GDP after Indonesia, Thailand and Singapore - has experienced political tumult in the last few years, but its economy has remained resilient.
There are indeed medium-term challenges that the government must tackle such as carrying out structural reforms, boosting labour productivity, improving education quality and reducing skills mismatches.
But the immediate scenario is positive, with all three international rating agencies still giving Malaysia a stable outlook for the sovereign credit rating, she said.
"From the economic point of view, it really looks like it is as good as it gets. Actually, any risk is on the downside from here, if there are any election surprises," she said.
As the May 9 polling day inches closer, pundits are raising the possibility of unexpected outcomes, such as a hung Parliament or social unrest, which could immediately affect the investment climate and financial markets.
The government has faced much criticism over cost of living issues, and has promised that BR1M cash handouts will continue if the ruling Barisan Nasional (BN) coalition is returned to power.
Both BN and the opposition Pakatan Harapan (PH) pact have pledged in their respective election manifestos to raise the monthly minimum wage to RM1,500 (S$505), from RM1,000 in Peninsular Malaysia now and RM920 in Sabah and Sarawak. PH has also promised to abolish highway toll charges and the goods and services tax.
Ms Ling noted that these election promises will have to be paid for, which could prove challenging as the government aims to further trim federal debt and keep its operating expenditure under control.
Meanwhile, Malaysia's development expenditure as a share of GDP has also fallen, she said, affecting investment in areas like education, health and rural development.