Malaysian investors shrug off political uncertainty

Following the Malaysian ruling coalition’s return to power on Sunday, investor relief was clear to see – and the feeling appears to be that real political progress is being made.

Local stocks rose 3.4% on Monday’s opening (and have made a slight gain since), and the ringgit rose 1.8% against the dollar to its highest in two years at 2.957, weakening to 2.971 as of late yesterday.

In its worst ever performance in a general election, Barisan Nasional was voted in for a 13th term winning 133 parliamentary seats out of 222, while Anwar Ibrahim's opposition coalition Pakatan Rakyat won 89.

Despite the opposition’s protest rallies and widespread concerns over electoral fraud, the assumption in the business and finance community seems to be that the result is final. And some feel that the relative closeness of the outcome is a major positive with regard to Malaysia’s reputation among foreign investors.

“It’s amazing how pragmatic Malaysians are – as much as you read about there being uncertainty, there isn’t any [among the business community],” says Rodney Muse, co-managing partner of alternative asset manager Navis. “Whether the result is totally clean may be debatable, but they will leave that for others to analyse. They’re getting on with life.

“There had been real anxiety there could have been a destabilising outcome from the election. Even some people who voted for the opposition probably had some anxiety about the implications,” he adds. “So overall there’s a certain lightness in people’s step now we’re through this."

In terms of its own private equity portfolio, Navis had been “reasonably exposed” to Malaysia, he says. “So we felt that for the private equity portfolio it was prudent to put things on some sort of hold for a gestation period pending the outcome. That being resolved, we can now move back into our typical gear of slow cautious investing.”

As for Navis’s public domestic equity exposure – through its $750 million in hedge fund assets – the team wound it down to zero about six months ago. It had since been building it up to a “modest” exposure at the point of the election and is now increasing it further, says Muse, without giving further details. 

“They weren’t particularly concerned about the election overall, but thought it prudent to down-weight,” he adds. “Their timing has worked well.

“Overall, most businesspeople feel happy that the incumbent coalition prevailed, and deep down they are probably happier still that it is by a reduced majority. The establishment of a credible opposition puts pressure on the government to keep delivering reform and transparency.

“The message is now that things need to change, and if they don't, the election of a new government is eminently plausible in five years’ time,” adds Muse. “All the signals say [the situation is] more positive than before the election.”