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Malaysia election: Financial markets have not priced in possible surprises ahead

The economy is on a strong footing, with gross domestic product expected to expand by 5.5 percent this year, after growing 5.9 percent last year.

Reme Ahmad (The Straits Times/Asia News Network)
Singapore
Sat, April 21, 2018

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Malaysia election: Financial markets have not priced in possible surprises ahead Malaysian Prime Minister Najib Razak is pictured before shaking hands with Chinese Premier Li Keqiang at the Great Hall of the People in Beijing on May 13, 2017. (AFP/Pool/Thomas Peter)

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alaysia'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 Selena Ling, head of treasury research and strategy at OCBC Bank.

"Financial markets are very calm pre-elections," she wrote in notes presented at a 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, Ling told The Straits Times Global Outlook Forum panel discussion on Thursday.

The economy is on a strong footing, with gross domestic product expected to expand by 5.5 percent this year, after growing 5.9 percent last year.

Some of the economic boosters include government handouts including the BR1M cash aid and bonuses to government-linked companies, strong private investments and thriving exports, Ling said.

Malaysia - South-east Asia's fourth-biggest economy by GDP after Indonesia, Thailand and Singapore - has seen 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 and improving education quality and skill mismatches.

But the immediate scenario is positive, with all three international rating agencies still giving Malaysia a stable outlook at 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 monthly minimum wages to RM1,500 (US$385), from RM1,000 in Peninsular Malaysia now and RM920 in Sabah and Sarawak.

The PH pact has also promised to abolish toll charges on highways, and remove the goods and services tax.


This article appeared on The Straits Times newspaper website, which is a member of Asia News Network and a media partner of The Jakarta Post
 

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