Archive for October 3rd, 2010

Key political risks to watch in Malaysia

Oct 1, 10

Malaysia has unveiled ambitious plans to boost its economy by mobilising hundreds of billions of dollars of private investment, although questions remain over whether the money will materialise.

Prime Minister Najib Abdul Razak’s cut in fuel, gas and sugar subsidies in August triggered a political backlash that may see him holding off more reforms ahead of the next general elections due by 2013.

Najib has pledged to reform the country’s subsidy bill to tackle the budget deficit. But he is wary of upsetting the country’s majority ethnic Malays, a critical votebank whose support will be vital as he tries to revive his ruling coalition which was hit by record losses in general elections in 2008.

Following is a summary of key Malaysia risks to watch:

Political conflict

Political tensions spiked after the 2008 general election when unprecedented opposition gains transformed the political landscape. BN coalition’s 52-year grip on the country was dented when it ceded control of five states and lost its two-thirds parliamentary majority to an opposition led by former Deputy Prime Minister Anwar Ibrahim.

The political uncertainty has weighed on foreign investment with net portfolio and direct investment outflows reaching US$61 billion (RM188 million) in 2008 and 2009 according to official data. Money has since flowed into the bond market according to central bank statistics, but little has flowed into equities.

What to watch:

• Opposition leader Anwar Ibrahim’s sodomy trial. Anwar says the case is a political conspiracy, and a contentious verdict would anger his supporters. Any marked increase in political tensions could see more foreign money pulled from stocks, bonds and the ringgit. But with limited foreign portfolio investment still in the country, the impact will be muted.

• Elections in the Borneo state of Sarawak, expected by the end of this year. The state’s chief minister has directed the ruling coalition to ready itself for state-wide polls, and analysts say nationwide elections could follow soon after. BN’s shock defeat in a May by-election in Sarawak raised doubts over its support levels in the state. Read the rest of this entry »