Ringgit shows resilience to election shock

Comments by Jameel Ahmad, Global Head of Currency Strategy & Market Research, FXTM

The decision from Malaysia to call a two-day public holiday and close trading following the unexpected election shock seems to have worked in its favour, with the Malaysian markets showing low signs of investor panic as trading reopened today.

While there has been some weakness in the Ringgit, this will likely fizzle out and is considered as marginal losses in comparison to the shock seen in the offshore markets last week when it became clear that Mahathir Mohamad would win the general election. The Ringgit had only declined 0.9% during early morning trade, which can be considered as small losses for the local note when factored in that it was not priced into the market that a coalition that had ruled the country for six decades would be defeated.

The relatively smooth transition of power for Mahathir Mohamad being sworn in as Prime Minister is a likely catalyst behind the losses in the Ringgit being smaller than expected. This reduced anxiety that Malaysia would come under a period of uncertainty and the likelihood that the election outcome uncertainties will continue to fade will present an opportunity for the Ringgit to recover.

Towards the end of the week we would expect for the market to begin refocusing on the macro aspect of the Malaysian economy. The GDP reading scheduled for Thursday (17 May) will probably continue to highlight that the Malaysian economy is growing at a robust pace.

Although there is a distinct possibility that headline growth will not be able to keep up with the overwhelming out-performance seen last year, a headline growth number somewhere around the 5% level will highlight to international investors that the domestic economic is still consistently performing far beyond the economic growth seen in the developed world.

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