In the wake of the tsunami that swept the Malaysian opposition alliance Pakatan Harapan and Dr Mahathir to power, the iShares MSCI Malaysia ETF promptly tanked 6% in US trading to close near to its 1 year low.
The investor in me started to click into gear. Putting aside all the political rancor and name calling, what does this earth shattering election mean for Malaysia businesses and equities? Is it time to buy?
Personally, I usually don’t follow Malaysian politics too closely, but here are some of my initial ignorant thoughts / ramblings.
What Mahathir and Anwar stand for
Throughout the 11 day campaigning process, there has been little discussion on economic policy except for a few stated populist measures (which I will cover later). As such, I could only form my opinion based on their past terms in office more than 15 years ago, when they were part of UMNO.
During his time as PM, Dr Mahathir was a renown as a strongman and the epitomy of Malaysia’s brand of race-based politics. As a child of the late 80s and 90s, I always remembered Mahathir’s inflammatory statements towards non-Malays and foreigners, in particular Singapore. He was also a protectionist, backing favourable policies to the Bumiputras while sidelining non Malays. Under his care, Malaysia felt inefficient and not as business friendly.
That said, Mahathir has struck a more conciliatory tone in his comments since the election. Can a leopard change its spots? Or is this simply a facade? Only time will tell.
In contrast, Anwar seems to be more progressive and inclusive based on his Wikipedia page. Honestly, I don’t know much about him in terms of policy, only the salacious details of his jailing, so don’t take this to be fact. He clashed with Mahathir over nepotism and held more progressive financial policies, before he was removed from office. His comments seems to be more moderate compared to Mahathir.
Comparing the 2, Anwar seems better for business than Mahathir. But I would love to hear any first hand views you may have.
General policies announced
1) GST change to sales tax
Nothing much to say here, just a limitation of scope of GST to only tax certain products. This should imply a reduction of taxes which is pro consumer and business. Doesn’t help the Government budget deficit though. The devil is in the details.
2) Reintroduction of petrol subsidies
Personally, I’m against this type of subsidies as it promotes abuse (Petrol is so cheap! Let’s just drive everywhere) and a crutch mentality. It is also fiscally unsustainable as oil is a cyclical market. In up cycles, the government will have to bear huge subsidies that could have been better spent elsewhere.
That said it is pro consumer and maybe it will boost consumer spending. Also doesn’t help the Government budget deficit.
3) Raising minimum wages
Again, I’m against the minimum wage model as it has proven to not work in many countries. This is because businesses tend to simply comply with the minimum wage and have little incentive to drive productivity and wage growth. I find Singapore’s model of Workfare coupled with productivity drives and upskilling to drive wage growth more sustainable in theory.
At face value, this measure will increase business costs but increase consumer purchasing power to drive spending.
4) Review of foreign investment deals
This is one of the more concerning issues raised with regards to the investment thesis in Malaysia. Is Mahathir going to kick out all the Chinese investments in Malaysia? Is he going to shelve the SG-KL High Speed Rail project? Initial rumblings have not been promising and this is something we have to watch closely if we want to invest.
The wild card – potential structural reforms
With the rigid BN establishment out of the way, there is hope for structural reform in Malaysia to drive it forward as a business friendly destination. Malaysia always had good fundamentals – a enterprising and resilient citizenry, strategically located with a decent hinterland – just that it had been bogged down with its Governmental/societal biases and policies.
If they are able to enact the necessary changes to drive the Malaysian economy forward, I’m sure it can do well.
In summary
The ouster of BN from Government felt like a rallying cry to rid Malaysia of an evil. However, will the PH Government under Mahathir / Anwar present a better alternative?
Therein lies an interesting investment conundrum. There are still many unanswered questions on economic policy that will be fleshed out in the coming year. That said, I trust that our neighbours will find the strength to enact the necessary changes for the good of their country. After all, ending the more than 60 year rule of BN despite all the barriers in place seems comparatively difficult.
For now, I’ll be watching with great interest. And researching Malaysian equities. And looking for good brokers for Malaysia stocks. The SGX – Bursa Malaysia trading link can’t come soon enough.
Happy Hunting,
KK