RINGGIT’S BREXIT MOMENT: PAIN FIRST – GAIN LATER

SINGAPORE – Malaysia’s election surprise is giving the ringgit its own Brexit moment, with the jump in US$/ringgit non-deliverable forwards (NDFs) showing foreigners weren’t expecting a change of government.

It’s a classic knee-jerk reaction that’s likely to extend further until there is more clarity on the impact on Malaysia’s fiscal position from the new leadership.

Pre-election talk of removing the goods and service tax is one example of how the revenue side will be affected.

Over the medium-term, the return of former prime minister Tun Dr Mahathir Mohamad could prove to be a positive if it helps to reverse the brain drain of young talented Malaysians working overseas.

But, investors will take a while to be convinced, and that exposes the ringgit to more near-term pain.

– Bloomberg

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