SINGAPORE (May 21): Anwar Ibrahim has been pardoned and released from prison. Lim Guan Eng has been appointed Minister of Finance, subject to the clearing of graft charges against him. The Auditor-General’s report on 1Malaysia Development Bhd (1MDB) has been declassified. Police have been seen searching the home of former Prime Minister Najib Razak. And, it has been only a week since Pakatan Harapan (PH), led by Prime Minister Dr Mahathir Mohamad, swept aside Barisan Nasional (BN) in a stunning election victory.  

For many Malaysians, it all feels like the end of a bad dream. We now know that the hanky-panky at 1MDB began within months of Najib’s becoming prime minister in 2009.  

We know that billions of dollars were stolen. And, we know that Malaysia’s top officials lied and lied and then lied some more. But Malaysians who voted on May 9 did not just boot BN out. They also brought an end to old rifts that left them vulnerable to being manipulated and humiliated by their own government. Najib’s time in office was just the darkest hour in a long night before dawn finally broke.  

When I graduated from university in 1991, I headed to Kuala Lumpur to look for a job. While I had been educated mostly outside the country, I felt that something was happening in Malaysia. The country was on the move.  

The economy was booming. Big infrastructure projects were being unfurled. And, Malaysia’s stock market was on the brink of a massive bull run. People grumbled about crony capitalism, and quietly discussed the risks of race politics. Yet, for me, it was a glorious time, and I could not have been prouder to be Malaysian.

Then, the Asian financial crisis struck, and something terrible happened to Malaysia’s politics. Everyone has his or her own version of this story. But the bare facts are that Mahathir and Anwar fell out with each other; Anwar was sacked from office, beaten in police custody and charged with sodomy; and a “reformasi” movement that sprang up was quelled. Mahathir eventually stepped down in 2003. The BN government enjoyed a temporary fillip in popularity as his successor Abdullah Ahmad Badawi took over. But things were never the same after that.  

The BN government, for one reason or another, began to lose the support of non-Malays. And, the whole country seemed to become less cohesive. People talked less freely and did not seem to interact as they once did. In 2015, it seemed like everything was coming to a head. As oil prices sank and word of the shenanigans at 1MDB spread, the ringgit depreciated sharply. A catalyst for political renewal seemed to have arrived.  

Yet, foreign investors did not abandon Malaysia. Some said the ringgit was undervalued, and many were attracted by the yields offered by Malaysian bonds. In late 2016, more than half of Malaysian government securities were in foreign hands. It seemed the only bears on Malaysia were Malaysians themselves.  

Ironically, late in the evening of May 9, as Malaysians began to feel a new sense of hope, foreign investors began worrying. By the end of the trading day in the US, the iShares MSCI Malaysia exchange-traded fund had fallen more than 6%. The market has since stabilised, largely because of Mahathir’s leadership. Without pausing for breath after winning the election, he appears to be moving quickly on the 1MDB case as well as a broad fiscal overhaul. And, he is not only tapping the experience of his former cabinet but also building consensus among the component parties of PH, some of which are led by people who were once his sworn enemies.

Indeed, the sight of characters such as Mahathir, Anwar and Lim as well as Daim Zainuddin, Zeti Akhtar Aziz and Hassan Marican all suddenly back on the stage and working together makes this feel like a spectacular moment of redemption for Malaysia. Apart from getting the economy back on track, the outcome of all this could be a more united country.

So, what should investors do? Naturally, there is a lot of nervousness, as the politics could change unexpectedly. And, stock valuations in Malaysia are not all that low. So, for now, the market is singling out stocks that are likely to be directly affected by the outcome of the recent general election.  

For instance, Bursa Malaysia-listed contractors such as Gamuda and IJM Corp are likely to be negatively affected by the planned review of the mega projects, according to Malaysian brokerage firm TA Securities. The outlook for media companies such as Star Media Group and Media Prima, which have links to component parties of the defeated BN coalition, is also pretty grim.  

On the other hand, efforts to boost disposable income in Malaysia could be positive for consumer stocks such as Hup Seng Industries and Amway (Malaysia) Holdings. Scrapping the Goods and Services Tax could also be especially positive for gaming stocks such as Genting Malaysia and Berjaya Sports Toto. Meanwhile, if you fear the ringgit will be weak as Malaysia pursues its fiscal overhaul, you could stick with exporters such as Kossan Rubber Industries, Top Glove Corp and Malaysian Pacific Industries, according to TA Securities.  

So, what’s next? Will there be a more durable, all-weather investing story for Malaysia? In the US, at market highs as well as lows, personal liberty and property ownership are said to be the basis of its culture of entrepreneurship and invention. In Singapore, whether asset prices are up or down, the city state touts its global connectivity, stability and rule of law. What can Malaysia claim as its own form of exceptionalism? After the catharsis of the May 9 elections, perhaps it will become clearer.

This story first appeared in The Edge Singapore (Issue 831, week of May 21) which is on sale now. Get your copy today.

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