With memories of Malaysia’s unexpected political shake-up still fresh, investors have three big elections to stay on edge about in the first half of 2019.
Thailand is set to finally hold a vote on 24 February after several delays since the ruling party took over in a bloodless military coup in 2014. Indonesia’s turn is 17 April, a rematch between President Joko Widodo and his rival Prabowo Subianto. And India will follow in April or May in a heated test of Prime Minister Narendra Modi’s power and reform-message clout.
Investors have good reason to be prepared: When Malaysian Prime Minister Mahathir Mohamad delivered a surprise victory seven months ago, foreigners dumped the nation’s bonds and stocks in a knee-jerk move. Rising oil prices at the time helped to cushion the slide for the crude producer, but credit-rating companies immediately began warning of budget risks and ballooning debt.
Aside from keeping a healthy scepticism on the polls, here are a few things investors and economists are preparing for as they await the elections:
Election date: 24 February. Incumbent: Prime Minister Prayuth Chan-o-cha
While enjoying steadier economic growth and more benign inflation than either India or Indonesia, Thailand has some unique negative risks as the ruling junta regime is set to stand before voters for the first time since its takeover almost five years ago.
Investors are concerned about any possible disruption to economic activity in a country that has been prone to political instability in the past. In 2014, the election strife included deadly street clashes that punished stocks and the currency, and contributed to a 13 percent plunge in foreign direct investment that year.
Mark Mobius, a veteran emerging-markets investor, said it’s “doubtful that we will see a major shift in power as we have done in Malaysia,” citing the limited time the opposition has to campaign.
Steve Cochrane, chief APAC economist for Moody’s Analytics, is watching Thailand’s growth-dependent tourism industry closely, saying it would probably suffer if the country sees a messy election day. “Any activity that dissuades tourists from arriving would hurt it, an awful lot,” he said.
At the same time, analysts point to Thailand’s history as evidence that even an unexpected result in February wouldn’t prompt lasting damage in markets and investment. Any administration is likely to keep up support for big infrastructure projects, said Deyi Tan, an Asia economist with Morgan Stanley.
“Thailand has a large current account surplus, ample reserves and low and stable inflation. What’s more, investors are attracted to the low volatility of its currency and bond returns. The primary risk stems from politics, though markets have tended to look through its turbulent history,” said Tamara Henderson, Bloomberg Economics.
Election date: April/May. Incumbent: Prime Minister Narendra Modi
Modi’s recent state election losses and the shock resignation of the central bank governor roiled investors last week, raising additional red flags for Suresh Tantia, an investment strategist at Credit Suisse AG in Singapore. He is negative on Indian equities in the near term given those reasons and the risk of a coalition government replacing Modi and undoing some of his reforms.
Sonal Varma, chief India economist at Nomura Singapore Ltd., sees capital expenditures probably taking a hit, especially in the first half of the year as businesses delay investment decisions.
Arthur Kwong, head of Asia Pacific equities at BNP Paribas Asset Management, said he’s staying long on India regardless of the election, in part due to the nation’s favourable demographics and low debt-to-GDP (gross domestic product) ratio. With more than 1.3 billion residents, India’s growing population has helped underpin one of the world’s fastest-growing major economies.
Election date: 17 April. Incumbent: President Joko Widodo
After it took quite a beating this year, the rupiah is set for a solid rebound to about IDR14,000 against the United States (US) dollar in the first half of 2019 as a gradual growth recovery and benign inflation buoy the incumbent, said Craig Chan, Nomura’s head of global emerging-market strategy and Euben Paracuelles, the bank’s Southeast Asian economist.
Strong prospects for Jokowi, as the president is popularly known as, should keep investors perhaps a bit calmer on Indonesia than the other two election economies, even as all three will benefit from a more dovish Federal Reserve and soft oil prices, said the Nomura analysts.
Jokowi’s candidate for vice president and Muslim cleric, Ma’ruf Amin, has helped bolster the president’s religious credentials, but unnerved some investors because of his hard-line views and his ability to win over young voters.
The president’s large lead in the polls has markets somewhat sanguine, but “it is of concern that he has been pandering to Muslim extremists, which has frightened both domestic Chinese investors as well as foreign investors,” said Mobius. “This could put a break on expanded investments in the country.”
One more risk to watch: Indonesia’s current account probably will remain in focus for investors. The shortfall widened to 3.4 percent of gross domestic product (GDP) in the third quarter, its biggest in more than four years. - Bloomberg