Year of the Dog reflections: Malaysia upends poll predictions

At the beginning of every Chinese New Year, AsianInvestor makes 10 predictions about economic, political and financial developments that are likely to have an impact on the way institutional investors assign their money. And then, one year later, we revisit these forecasts to see how well we did.

Our seventh Year of the Dog forecast focused on whether a set of elections set to be held in several countries in Southeast Asia would result in any changes of government. 

Will there be any post-election regime changes in Southeast Asia?

Answer: No - incorrect

We got this one badly wrong, but in fairness so did most other onlookers. The victory of the opposition coalition in Malaysia's general election in May 2018 was a huge shock, both to the country and the region. 

The return to power of a political group led by 92-year old Mahathir Mohamad, the former prime minister and former leader of the United Malay National Organisation (Umno), which had ruled Malaysia since independence in 1957, was a shock.

Yet, in truth, we should have seen it coming as the signs had been building for years, with the Umno-led coalition losing popularity due to the increasingly dictatorial rule of Najib Razak. The ex-prime minister's administration had taken to using a pre-colonial sedition law to stifle dissenting media viewpoints. And it had increasingly sought to do so to stifle reporting of the scandal surrounding sovereign wealth fund 1MDB.

Najib, who founded 1MDB in 2009 with himself as chairman of its advisory board, was discovered in 2015 to have received $681 million from the fund into his personal bank accounts. Both he and 1MDB denied wrongdoing but Najib's claims that the money was a gift from the Saudi royal family for political purposes seemed flimsy at best. Subsequent allegations suggested $4.5 billion of 1MDB's assets had been misappropriated.  

Najib tried protecting himself in July 2015 by firing his deputy prime minister, four government ministers and Malaysia's attorney general, all of whom had criticised the government's handling of 1MDB. He also dismissed the attorney general who was investigating the transfer of funds and appointed a replacement who declared him innocent of any wrongdoing.

These blatant abuses of power caused Najib's popularity to collapse. Even so, the rule of Umno had been unbroken since Malaysia's independence; despite seeing its percentage of votes drop it seemed a bridge too far to expect it to lose.

Malaysia's electorate had other plans. Voters from the country's minority Chinese and Indian ethnic groups combined with younger Bumiputra voters to project their disgust on Najib and his cronies, along with dismay at the mounting cost of living. So the Pakatan Harapan Alliance soundly beat the Barisan Coalition led by Umno in the May elections, taking 113 seats – one more than the 112 it needed – to form a government. 

That has since led to a new, less-entrenched administration. The elderly but still energetic Mahathir has returned as premier, with his former foe Anwar Ibrahim a premier-in-waiting under the terms of their pre-election pact. The new administration has committed to rooting out corruption and conducting reform.

However, given that much of Malaysia's vested interests attained their status under Mahathir, it remains to be seen how assiduously his administration will conduct major change.  

While our call on Malaysia was wrong, we were at least more accurate when it came to the elections in Cambodia, where the government of the increasingly dictatorial premier Hun Sen retained his power and dominance of the country.

Meanwhile, in Thailand, the ruling junta under prime minister general Prayuth Chan-Ocha decided against a promised November election. Instead, it is now set to take place on 24 March.

As in Malaysia, the results will be interesting. The ruling junta has encouraged the formation of the pro-military and government Phalang Pracharat party, which has swayed some former opposition politicians to its ranks while banning all parties from campaigning. However, political forces affiliated to former prime minister Thaksin Shinawatra continue to enjoy support.

Previous Year of the Dog outlook reflections:

Will China's debt burden become a major drag on its economy? 

Will the Bank of Japan's quest to create inflation succeed?

Are European and UK stocks a good bet in 2018? 

Will the US Treasury yield curve invert?

Will Donald Trump still be president at the end of 2018?

What will be the best performing mainstream asset class, on a risk-adjusted basis?