Malaysia dimming performance outlook drives investors away

A year ago the key focus was to “save Malaysia” from the evil Barisan Nasional regime that many claimed have been in power too long. Pakatan Harapan sought the aging the scandal-ridden ex-prime minister Mahathir Mohammad leading the country into a shocking victory.

In mere eleven months, all is not well in Malaysia. DBS Bank in their Malaysia 2019 Outlook claims “In the space of a year, global economic conditions have changed from synchronised expansion to peak growth. Key economies are projected to register slower growth on reduced economic activity, negative effects of trade measures, tighter financial conditions, and geopolitical tensions. Weak demand from Malaysia’s export-oriented sectors will result in slower GDP growth.”

The recent Bloomberg report called Malaysia’s KLSE “the world’s worst major stock exchange” and “The benchmark FTSE Bursa Malaysia KLCI Index is down 14 percent from a record in May 2018 and it’s the worst major market in the world so far this year, having slipped 3.6 percent. That’s even amid a rally in global equities spurred by the Federal Reserve’s dovish pivot and a potential trade deal between the U.S. and China.”

FTSE Russell said on Monday (April 15) it may drop Malaysian debt from the FTSE World Government Bond Index because of concern about market liquidity, roiling the Asian nation’s currency and bonds on Tuesday. And less than two weeks ago, Norway said its sovereign wealth fund will cut emerging-market debt, including Malaysian securities, from its index. 

Morgan Stanley estimates, Malaysia’s withdrawal from the FTSE World Government Bond Index may lead to outflows of almost US$8 billion (S$10.8 billion), based on the nation’s weighting of 0.39 percent.

Not too long ago under the previous Barisan Nasional government, Malaysia’s KLSE had the “world’s longest bull market” but those times are gone. Over-ambitious statements of fictitious “1 trillion debt” and linking 1MDB to everything sent investors heading to the hills.

The constant flip flops on policies and renewing old disagreements with neighbours doesn’t scream economic stability. Neither does a 94-year-old prime minister with no concrete succession plan.

While naysayers may quickly seek to dismiss the above as global headwinds, only a year ago Malaysia was one of the few countries that were able to withstand the same turbulent times with strong policies and growth.

Even the best of Pakatan Harapan fans are now wary of the return to “Mahathirism”, a term used to describe 22 years of corruption and cronyism under the draconian rule of the former, now current premier, the highlight, of course, being the jailing of Anwar Ibrahim his protege.

Moody’s Investors Service said in a note that Malaysia’s debt burden has reached above the median of A-rated sovereigns, due to the RM6.23 billion bailout of Felda.

Meanwhile, global index provider, FTSE Russell is considering the possibility of dropping Malaysia from the FTSE World Government Bond Index, citing concerns over market liquidity. Mahathir Mohamad said he is puzzled by global rating agencies for potentially downgrading Malaysia’s credit rating claiming “Barisan Nasional (BN) administration was saddled with debts and liabilities but was still viewed in a better light by those agencies.”

But Barisan Nasional under Najib Razak was different from Mahathirism. There were far more transparency and no bailouts. This together with a strong growing economy had rating agencies and investor confidence – which ironically, was what Mahathir and Pakatan Harapan coalition attacked heading toward the last general election. They now reap what they sowed before.

The significant lack of performance, unfulfilled election pledge promises saw electorates severely punish Pakatan Harapan in not one, but three by-elections showing there is a growing dissatisfaction on the ground. Many now predict that Pakatan Harapan will end up a one-term government with support for Barisan Nasional increasing by the day.

It may very well be that Barisan Nasional may need to save the country from Pakatan Harapan this time around.

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