Investors in Malaysia take nothing for granted

Funds preparing for range for outcomes ahead of polls as ringgit's rise comes to a halt

KUALA LUMPUR • Polls predict Malaysian Prime Minister Najib Razak will be returned to office in next month's general election but a string of political shocks around the world in recent years means investors are bracing themselves for a range of possible outcomes.

While the ringgit is still Asia's third-best performer this year, it lost ground this month as uncertainty increases before the May 9 vote. The nation's 10-year bond yields climbed to the highest level in a month last week.

"There has been a slight weaker bias in the ringgit recently as we approach the general elections," said forex trader Wu Mingze at INTL FCStone in Singapore. "Political watchers are expecting the ruling party to win but we've had so many surprises in the past couple of years that the market isn't taking anything for granted."

Datuk Seri Najib is hoping the strongest economic growth in three years will help his ruling coalition Barisan Nasional improve on the previous election in 2013 when it secured its lowest number of parliamentary seats.

The opposition Pakatan Harapan led by former prime minister Mahathir Mohamad is aiming to take advantage of voter disaffection caused by rising living costs and financial scandals surrounding the government.

"People are upset at the ruling party," Mr Wu said. "Whether this translates into opposition leader Mahathir Mohamad winning is another story, but it'll be foolish to write him off entirely despite the long shot."

A victory for the ruling coalition will be a net positive for Malaysian assets, said Mr Jean-Charles Sambor, deputy head of emerging-market fixed income in London at BNP Paribas Asset Management, which oversees the equivalent of US$702 billion (S$921 billion).

"We see Malaysia local currency bonds as still under-owned by foreigners," he said. "The market wants to see political and policy continuities."

Still, a lot of optimism may already have been priced in with the ringgit having risen around 6 per cent against the US dollar in the 90 days before the dissolution of Parliament, the biggest gain for the period relative to previous elections since 1982, the analysts said.

A hung Parliament "would definitely create a volatile environment", Mr Sambor said. "We would have less visibility... however, our portfolio decisions would be heavily predicated on the likely resolution in such a scenario as well as prevailing market pricing."

Barings may maintain its current positions even in the case of a hung Parliament as Malaysia is on a solid economic footing, said Mr Ricardo Adrogue, head of emerging markets debt in Boston at the fund manager, which oversees more than US$300 billion. Similar to developed economies, a protracted period of political negotiation will not necessarily be bad for the economy, he said.

If the opposition wins, much will depend on the market reaction and the composition of Parliament although positions are unlikely to be revised, Mr Adrogue said. "We never see political renewal as a bad omen anywhere," he added. "In Malaysia's case, the opposition has not yet governed the country in the past and that is the only uncertainty for investors - that is, how they will govern. But this is not necessarily negative."

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A version of this article appeared in the print edition of The Straits Times on April 17, 2018, with the headline 'Investors in Malaysia take nothing for granted'. Print Edition | Subscribe