Mahathir’s shock election win rattles markets
Mahathir Mohamad's stunning upset win in the Malaysian election risks causing short-term uncertainty in the southeast Asian nation’s economy and short-term volatility for investors, analysts say.
Mahathir Mohamad's stunning upset win in the Malaysian election risks causing short-term uncertainty in the southeast Asian nation's economy and short-term volatility for investors, analysts say.
Malaysia's ageing former leader staged a historic political comeback, winning a majority in the general election, ousting his former protege Prime Minister Najib Razak and bringing to an end the six-decade rule of the governing coalition party Barisan Nasional.
Mahathir takes charge of an economy growing at 5 per cent, low inflation and a currency that has been a standout in the region.
BNY Mellon Investment Management senior sovereign analyst Aninda Mitra says the surprise outcome may lead to uncertainty in the local economy and short-term volatility for investors as policy questions remain unanswered.
“I believe the ringgit [the Malaysian currency] will come under pressure as policy continuity will come under a cloud. The Pakatan Harapan led by an ageing Mahathir has sworn to dismantle GST and bring back subsidies and raise minimum wages,” Mitra says
Razak was widely expected to win because of his recent redrawing of electoral boundaries to massively favour the ruling party, which Mahathir himself once led.
In 2016, Mahathir, who turns 93 in July, emerged from retirement to join Pakatan Harapan, the opposition coalition of left-learning and centre parties, and was announced as their prime ministerial candidate earlier this year. He campaigned on a promise to reverse a goods and services tax and the reintroduction of fuel subsidies, and vowed to oust Najib, accusing him of plundering a state investment fund 1MDB.
“I think there will be short-term volatility,” Mitra says. “It is a significant course correction following the corruption under Najib. However, I can't see realistically how they can unwind GST. It contributes as much as around one quarter of total federal government revenue and cannot be easily substituted by other revenue sources.
“The bottom line is that while a long-term fix of governance, institutions and public life is now in sight, near-term policy uncertainty will be high. That will take a toll on the ringgit at least until more clarity emerges.”
Malaysia's currency fell 1.7 per cent in early offshore trading. The US-traded iShares MSCI Malaysia ETF fell 6 per cent, according to Reuters.
The national stock market will be closed today and Friday after Mahathir declared a public holiday.
Fund manager Fidelity International says that while the new government is likely to be market friendly and focused on generating economic growth, it is weighing several policy changes, including the removal of GST, the reintroduction of fuel subsidies, reduction of infrastructure spending, and the removal of toll fees, which could have implications for Malaysia's credit rating.
Fidelity predicts possible negative impacts to the infrastructure sector and companies with high imports, while exporters and consumption stocks may benefit from higher disposable incomes. The oil and gas sector could also benefit should oil prices remain elevated.
Mahathir's historic win ousted the Barisan Nasional coalition, which has been in power since independence in 1957.
Speaking to his supporters, Mahathir pledged the new government would not seek "revenge" against political opponents. It would, however, seek to restore the rule of law and prosecute those who had breached it.
Mitra says few had predicted Mahathir to prevail over a coalition that has relied on the ethnic-Malay vote to shore up its majority. “The Malaysia election outcome is a huge upset, no pollster was expecting this,” Mitra says. “This upset ranks up there with Brexit and Trump election. This is as momentous as say PRI being dislodged from power in Mexico.”
During his 22-year reign as as prime minister until 2003, Mahathir oversaw a period of rapid modernisation and economic growth. But he often ruled with an iron fist, curbing civil liberties and detaining activists and political opponents.
Mahathir's win makes him the oldest elected leader in the world.
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Emma Rapaport is a reporter for Morningstar Australia.
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