STOCKS WITH M’SIAN EXPOSURE FALL IN SINGAPORE BOURSE: ‘THE MARKET HAS NEVER SEEN A TRANSITION OF POWER AWAY FROM BN’

SINGAPORE: Stocks with Malaysian exposure were hit on Singapore bourse on Thursday morning (May 10) after Malaysia opposition’s shock election win.

As at 10.01am, Singapore-listed stocks with Malaysian exposure such as Jardine Cycle & Carriage, IHH Healthcare and Hatten Land fell. Jardine C&C was down $1.01 or 3 per cent to $32.87, IHH Healthcare down three cents or 1.5 per cent to $2.00, and Hatten Land down 0.1 cent or 0.6 per cent to $0.16.

By 9.49am, Singapore’s Straits Times Index was 4.64 point or 0.13 per cent lower at 3,543.90.

Malaysia’s stock market is closed on May 10 and 11.

On the currency front, the ringgit weakened against the US dollar, with US$1 worth RM4.046 as at 9.12am, up by 5.75 sen or 1.4 per cent, according to data from Bloomberg.

The Singapore dollar dipped against the ringgit, trading at RM2.935, down by 1.19 sen or 0.4 per cent, close to a two-year low.

Credit ratings agency Moody’s described the market’s uncertainty, saying: “The country has never witnessed a transition of power away from the Barisan Nasional since its independence in 1957. Little is known about the opposition’s full range of economic policies, and its electoral pledges have lacked details that would allow for a full assessment of their budgetary and macroeconomic impact.

“Some campaign promises, if implemented without any other adjustments, would be credit negative for Malaysia’s sovereign. These include a proposed abolishment of the GST which, without offsetting measures, would increase Malaysia’s reliance on oil-related revenues and, in the near term at least, narrow the government’s revenue base.

“Another policy pledge, the reintroduction of fuel subsidies, would also distort market-determined price mechanisms, with effects on both the fiscal position and balance of payments.”

Oanda Trading Market called the overnight results announcement “stunning”, adding that this is creating “quite the stir” with foreign investors trying to decipher the mandate of former Malaysian prime minister Mahathir Mohamad’s Pakatan Harapan party.

“The thinly traded one-month NDF (non-deliverable forward) markets have shot up on the election results above 4.05 in response to the anticipated knee-jerk weakening on Malaysian assets as indicated. It added that the USD/MYR had pulled up 1.75 per cent in the pre-election run-up, but with the NDF now printing 4.075, the ringgit now sits at the bottom of the regional currency pecking order.

It also agreed that abolishing the GST and accelerating fiscal spending could be interpreted negatively, given the drain on government coffers, which would be credit negative for Malaysia.  – – Straits Times, Singapore

What Mahathir’s shock win means for economy and markets

KUALA LUMPUR: Investors are grappling with Dr Mahathir Mohamad’s surprise election victory in the 14th general election. Here’s a look at what it means for the outlook for economic policy and markets.

At 92 years old, Mahathir led a four-party coalition to end the six-decade rule of Prime Minister Najib Razak’s party. He inherits an economy that’s growing more than 5%, inflation that’s subdued and a currency that’s been one of Asia’s best performers this year.

What were Mahathir’s main policy pledges?

Abolishing a 6% goods and services tax (GST) was a key campaign promise, which Mahathir promised to do within 100 days of taking office. The tax, which was introduced in 2015, is widely blamed by citizens for their rising living costs. The opposition coalition said it would replace the GST with a sales and services tax that’s more fair.

The coalition also promised to reintroduce gasoline subsidies, increase petroleum royalties to oil-producing states and raise minimum wages.

What does it mean for the economic outlook?

Malaysia’s economy is enjoying a strong rebound at the moment, with growth surging to 5.9% last year and forecast by the central bank to reach 5.5% to 6% in 2018. Most of that recovery has come on the back of a pick-up in global trade and rising domestic demand. But with trade tensions dominating this year, and exports accounting for two-thirds of gross domestic product, there are risks to Malaysia’s outlook ahead.

A move on GST and a return of fuel subsidies would put pressure on the budget deficit, which Malaysia has steadily brought down to 3% of GDP.

Malaysia should also brace for a “sharp slowdown in investment growth” if Mahathir’s positioning against Chinese involvement in infrastructure prompts a stalling of those projects, according to Capital Economics Ltd.

Does this change the monetary policy outlook?

The central bank was scheduled to announce an interest rate decision at 3pm today. After moving early with a January rate hike, economists didn’t expect another change any time soon. All 18 economists surveyed by Bloomberg before the election predicted the benchmark rate would stay at 3.25%.

Inflation has been relatively benign, slowing to 1.3% in March, with a stronger currency since last year helping to ease price pressures. The government had forecast average inflation of 2.5% to 3.5% for this year.

Chua Hak Bin, an economist at Maybank Kim Eng Research in Singapore, said he expects the central bank to proceed with its rate decision on Thursday and hasn’t revised his call that there’ll be no change in the policy position.

“You want to ensure continuity,” he said. Bank Negara Malaysia will probably include language in the statement around “ensuring stability” in the ringgit and that they are “monitoring capital flows”, he said. The central bank is independent enough that policy shouldn’t change, he said.

What does the upset win mean for currency policy?

The manifesto by Mahathir’s coalition said it will give a mandate to the central bank to develop a strategy to return the ringgit to its actual potential within three years. Mahathir retains a wariness of currency traders and has warned that he’ll be willing to re-introduce a peg on the ringgit to ward off “currency manipulators” if necessary.

The ringgit is the best-performing currency in emerging Asia this year, strengthening 2.5% against the dollar.

What does this mean for the stock market?

The uncertainty following the surprise election result will boost volatility and prompt re-positioning of Malaysian assets by investors, analysts said. Christy Tan, head of markets strategy at National Australia Bank in Singapore, said markets are in for a “rough ride as this was the least priced-in scenario” and “while the result is cheered by Malaysians, this means more uncertainties for international investors”.

The FTSE Bursa Malaysia KLCI Index of shares is the third best-performing major emerging Asian benchmark this year as the pre-election rally sent the measure to a record high.

With the onshore market closed because of public holidays declared today and tomorrow, the knee-jerk selloff could well be more pronounced in offshore trading, according to Tan.

The iShares MSCI Malaysia ETF dropped 6% to US$32.42 in the US, the lowest since December. – BLOOMBERG

ST / BLOOMBERG.

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