Ad Hoc Commentary – Malaysian elections, the incumbent will likely stay in power

Malaysians goes to the pool today, and yours truly believe that the incumbent will stay in power. However, their days are numbered. This is likely the last five years for the incumbent. Just as in Japan’s case in 1993, the long time ruler does not usually get kicked out until the economy turns. In Japan’s cae, the bursting of the Heisei bubble in 1989 kicked out the long time rulers in 1993:

“…But by 1993, the end of the miracle economy and other reasons (e.g. Recruit scandal) led to the LDP losing its majority in that year’s general election…”

In Malaysia’s case, political risk will be the next elections, not this one. Follow the debt. Malaysia had it good recently as foreign holdings of local currency government bonds rose from about 0% to 30% in the last decade:

However, dancing with debt is mortgaging the future. The incumbent knows this. What do you think the kings will do if they know they have only 5 years in power left? Follow their conscience and leave the country a better place for the next generation? Or grab everything before he is forced to abdicate the throne? Singaporeans looking to buy real estate up north should ask themselves these questions.

Yours truly believe that the US dollar will strengthen as we head into the final throes of the American sovereign debt crisis. We remember how the Japanese yen strengthened from the highs in late 2007 fueled by short covering of the Yen carry trade. As America move from print print print to tax tax tax, the US dollar will rally back from zero to hero, fueled by short covering by companies borrowing in US dollars.

Malaysian companies will not be spared, and these contingent liabilities will appear once again on the sovereign books as it did in the 1998 Asian crisis. Thus it is perhaps premature to believe that the incumbent will lose the current elections. The debt had not turned yet.

Good luck in the markets.