We often avoid posting articles with high sensitivity towards politics but being an investor with Malaysian asset exposure, one couldn’t run from the biggest risk coming from election outcomes even with the slightest chance of a government change.
But for our followers who seek info on our page, it is only fair to give them some head up prior to GE14.
I guess we should add in a disclaimer saying “This is not a paid write up but a public service announcement by the analysis team of OM Capital” Thank You.
Obviously, only two outcomes from this election where the new government would be Barisan Nasional (BN) or Pakatan Harapan (PH). We could almost assume that PH would win by the number of votes based on GE13 results where 50.87% of total votes goes to Pakatan Rakyat.
With Najib’s approval rating dropping over the years heading to GE14, it is likely that more votes would fall towards the opposition.
The introduction of GST, the scandals involving 1MDB, the participation of Dr. M in GE14, ringgit’s wild ride against many other currencies and the list goes on. The everyday rakyat might have had enough of this and this might spark a change with a shift of votes going to PH this round.
Sadly in Malaysia, one vote is not worth one vote in the parliament because there are seats with 30K voters versus seats with 150K voters. The power of 30K voters outweighs 150K voters, how cool is that? You can see the link below for explanation on this.
See Why isn’t every Malaysian vote Equal?
With that being said, the road to parliament is so much steeper for PH rather than the incumbent. Anyway let’s go back to the markets.
We start with currency since it’s the easiest. The MYR is stronger that ever and we recommend that you should start your exchange to foreign currency before GE14 (which we did last week) if you had plans for overseas travels or kid’s tuition fees.
Basically, the MYR will weaken based on historical facts after the election.
Let it be BN win or PH, we estimate that there would be a decline eventually.
The drop in MYR would be gradual if BN stays. This had been the case in past elections and we do not think that this would change this time around. MYR is at its strongest since the scandals of 1MDB and we felt that months of no movement isn’t natural for the currency.
We see a significant one day drop if PH wins. Due to market uncertainty and investor’s confidence towards the Malaysian Government Securities, we should see some capital fled if PH wins. Investors would make their way back when the economy stabilizes but that isn’t going to be fast.
With that, case close, MYR in our estimate would drop no matter what.
Tricky as it goes and similar to the votes, market knows which stock is bias to BN. Standard government linked companies such as Tenaga, Malaysian Airports, TM would see a slight boost due to stability.
We estimate that if BN wins, KLCI will open on the high side possible breaking the all time high but sees gradually decrease over the next few weeks due to profit taking. This happened in GE13 and likely that would repeat itself this time around.
But if PH wins, we estimate that there could be a 20% correction to come in place as markets hate uncertainty. A change of government would spark uncertainty for Malaysia’s economy causing markets to respond negatively in this matter.
PH Wins Spells Doom?
No, not quite. Although it seems that if you voted for a government change, we are all doomed as we should see KLCI goes nuts touching 1,500 in no time.
As said earlier, the market hates uncertainty. The market isn’t pre-adjusting that a PH win will crash the Malaysian economy. The market is merely adjusting itself to be cautious prior to the implementation and results coming from the new administration. Order still remains with markets going volatile playing the guessing game.
Based on what happened 10 years ago when the opposition took office in Penang, plenty of issues needed to be addressed straight away to get them up to speed in ruling the state. Some even said that the opposition inherited a blank office without any paper trace on documents possibly destroyed due to obvious reasons.
That being the case, we shouldn’t be shocked seeing an empty Putrajaya if PH would to win this time around.
It would definitely take some time for a rebuilding to happen if PH takes over but this shouldn’t be the only reason for you to take into account in your voting decision. Much like investing, voting decision had to be weighted towards providing long term benefits.
One shouldn’t let short term gains acting as if they were pain killers to a bigger problem. One should address a major issue such as initiating a major operation to remove a tumor to solve the problem once and for all. We believe that many voters do place their votes in factoring long term benefits rather than emotions since awareness had been rising significantly these past few years.
Evidently, the proof that handouts such as BR1M isn’t working anymore where many had realized that in the end, we are living in a circular economy. What goes around comes around. What had been given today will be paid through means such as an increase in GST rate in the future to cover the deficit.
Voting for BN?
If you believe in the coalition then everything would carry on the way it is. The economy will remain stable and the economy would continue booming the way it is like what it was previously. We also believe that the amount of scandals would be reduced.
Najib would still be in power as we believe that a replacement still isn’t clear for the top spot of the administration. The next 5 years will see an economic boom strong towards the sectors which in previous years favorable to Malaysia such as electronics. Sectors such as oil & gas will continue to see a decline in interest by the BN government not only ‘politically’ but also a real deteriorating segment in our economy.
We believe that votes that goes to BN are mostly seeking stability and ignoring scandals and likelihood of cronyism within the government. It’s as if our country couldn’t run from these elements and we should still expect one to close an eye regarding this issue. Not every single being is built equal and we should still respect that.
We still think that BN will win this time around even with many problems and scandals exposed on the media. The seats advantage rather than votes advantage played a huge role in winning the parliament.
The General Election in Malaysia had always been this way and that favors the incumbent which is why that structure had remained the way it is.
Still, vote for the party which you think is suitable and believe in.
Do not give pity votes to party that you think they might lose as this practice is worst than not voting.
Even if PH wins 60% of votes but still doesn’t pocket the parliament, don’t be discouraged by this issue. If it were that easy, the victory would have came in 2013.
Learning that Donald Trump’s win happened, Brexit amazes us until today, we shouldn’t rule out that something crazy could jump out this time in Malaysia.