The Malay Tsunami and the effects of elections on the economy (and by extensions, the market)

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It’s been an interesting week for Malaysia. With the main reason being the re-delineation of seats and districts for the upcoming elections.

I cannot count the amount of people speaking about it as if it’s the end of days, how unfair it is, and how because of this, it’s an absolute goner for Pakatan Harapan. And this includes our opposition politicians as well.

I disagree.

It is unfair, but in my opinion, it will make very little difference in the outcome of the elections. I think Pakatan Harapan will still win this round, its mainly a question of if the transition will be smooth, or what other tricks does BN and Najib have under his sleeves.

This delineation was done in accordance with the voting patterns of the last general elections. And since then, so much has changed.

The effects of last election was attributed to the Chinese Tsunami. This year, it will be due to the Malay Tsunami.

In the last election, the districts won by BN consist of mainly the rural malay areas. These areas are dominated by the lower income Malays who are also malaysia’s biggest voter base.

Here’s a quick thinking exercise.

“Over the last 4 years, can you tell me even one thing Najib or BN did right for the lower income malays?”

I personally honestly cannot even think of one thing. Before you say BR1M, let me say that the effect of GST is about 4 times bigger than BR1M.

Last time, these people could just ignore the opposition and continue support BN, because despite the rhetoric of the opposition. Their lives were never really affected, at least not in a way that they knew or would notice. This round its different, most of them are suffering due to BN’s policies.

There will be many factors for BN’s loss, but here are what I think is are the most important ones.

 

GST & Increase cost of living

This in my opinion is the major factor. For most of us middle class or upper middle class city people. Let’s be real with each other, GST does not really affect us. The only time we really feel it is when you buy a big ticket item and find out that you need to top up a few hundred for GST.

For those earning RM4,000 and above. What is an extra few ringgit here and there? You can barely feel it.

However, the vast majority of malays and the rural folk, earn less than RM2,000 per month, with most of them earning less than RM1,500. I am not kidding you on this.

When i was an auditor not too long ago, i’ve gone through the entire payrolls and headcount of entire companies. And most malays earn just RM1.2 to RM1.5k a month. And many of them have 2-4 children. How does one even survive.

Before you diasgree with my anecdotal evidence.

Do note that only 10% of Malaysian’s pay income tax or earn more than RM3.7k a month. And 80% of Malaysians households earn less Rm8,319 (including double income). In addition, I have yet to see a Chinese earn less than RM2k per month when going through the payrolls. And indians are only 5% of the population.

For people like these, who literally live hand to mouth every month, and spend close to every cent on essentials, that additional 6% is an incredibly heavy burden.

And BR1M is what, only RM400? Assuming a household makes RM2k a month, or RM24k a year, and spends it all on essentials. That is RM1440 extra they pay a year due to GST. Minimum.

We don’t even need to start talk about the weakening of our currency causing the prices of goods to rise.

For the last 2 years or so, the lives of these rural or low income malays, which makes up the bulk of malaysia, have been pretty bad.

 

1MDB

What else is there to be said? Everyone knows the story. Everyone knows who MO1 is. Even the makcik selling nasi lemak knows who it is.

 

Mahathir

For most Malaysians still alive today, the greatest level of prosperity we have ever known came while Mahathir was in power.

Mahathir coming back at a time like this, is like the second coming of Jesus for most rural malays. In their minds, here is the old man, coming back to save everyone and make Malaysia great again.

The fact that he has shifted over to the opposition means that a lot of the rural malay votes will be coming along as well.

 

Felda

A few years back, FGV was listed, and the settlers were given FGV shares in exchange for their lands. The IPO price for FGV was RM4.55. It is RM1.7 today. That is a 63% drop in your net worth if you’re a felda settler.

In 2013, BN won Rompin by 15k votes. In 2015, when the MP died and a new election was held, they won by only 8.8k. And the share price for FGV was RM2.3 then.

Felda settlers control 54 out of 222 parliamentary seats, of which 48 is BN’s.

 

Conclusion

If Pakatan Harapan wins, what will this mean for our economy and our markets? Well, you can bet for the first few weeks or months to be very messy. Market volaitlity will be very high. The lack of political stability will make foreign funds pull out, which will create more instability.

But once PH is in charge. Malaysia will once again be on the right track and i can see the economy and the country going from strength to strength.

What if BN wins?

Well, we might get a boost in the markets. Temporarily.

But over the long term, malaysia is going to go down the path of ever greater mediocrity for the next 10 -20 years, before it all goes down the shitter.

Because you can bet that BN and Najib will be leading till the day he dies. And they will rule with ever greater impunity.

If BN can still win despite 1MDB. You can do anything you want. And they will do whatever they want.

What does this mean for the average investor? Well, for me, i don’t let my views on politics etc affect me too much.  But i do lean a little on it.

Instead of being 100% commited into the markets, ill likely put 15-20% in cash, getting ready to take advatage of the sudden drops if any.

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