With dark horses like Trump, Brexit winning, investors not ruling out Dr M

GE14 | What do Donald Trump and Brexit have in common with Dr Mahathir Mohamad? They were considered dark horses but eventually won.

Therefore, Mingze Wu, an FX trader at INTL FCStone Inc. in Singapore, told Bloombergthat nothing should be taken for granted.

Mingze was among the fund managers and analysts interviewed by the business publication with regard to the May 9 general election in Malaysia, dubbed the mother of all polls.

The election would see Mahathir taking on his former protege Najib Abdul Razak. As it stands, mixed signals have emerged from the Malay ground, which is set to dictate the outcome.

“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.

“Brexit, Trump and the dark horses have been winning.

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

On paper, BN is expected to retain its six decades-long grip on power but the opposition coalition Pakatan Harapan is hoping that Mahathir would convince the Malays to shift their allegiance, especially in light of the 1MDB scandal.

Three possible scenarios

Meanwhile, the Bloomberg article outlined three possible scenarios arising from the 14th general election.

The first scenario is if Najib and BN win.

According to Jean-Charles Sambor, deputy head of emerging-market fixed income in London at BNP Paribas Asset Management, this would be a net positive for Malaysian assets.

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

Roberto D’Ambrosio, chief executive officer at Alpari Research and Analysis (UK) in London, told Bloomberg that a win for Najib would be regarded as continuity and positive for markets in the short term.

Whereas, Malayan Banking Bhd analysts said the ringgit might strengthen as much as 1.5 percent if Najib is re-elected.

Khoon Goh, head of Asian research at Australia & New Zealand Banking Group Ltd. in Singapore, said in the event of a BN victory, the ringgit would post negligible gains as it has already strengthened quite a bit and the win would imply status quo for Malaysian economic policies.

The second scenario is a hung parliament.

BNP Paribas Asset's Sambor said this would create a volatile environment.

“We would have less visibility in such an environment, however, our portfolio decisions would be heavily predicated on the likely resolution in such a scenario as well as prevailing market pricing,” he added.

Ricardo Adrogue, head of emerging markets debt in Boston at Barings, said the firm would maintain its current position despite a hung parliament as Malaysia is on a solid economic footing.

He added that similar to previous cases in developed economies, a hung parliament or a protracted period of political negotiation, would not necessarily have an adverse impact on the economy.

The third scenario is an opposition victory in the polls.

In the short term, Alpari's D' Ambrosio, said that markets might react in a negative manner although the focus would be on the country's economic fundamentals which would remain unaffected.

Whereas, ANZ's Goh said: “Given that the opposition has never won before, it would be seen as a huge surprise to the market, which may see the initial reaction being a weaker ringgit. The near-term topside resistance level in USD/MYR of 3.9004 may be the first target in such a scenario.”

Baring's Adrogue said political change is not considered a bad omen anywhere.

“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 would govern. But this is not necessarily negative,” he added. - Mkini