Wednesday, March 12, 2008

So what did Credit Suisse said?

Got a copy of Credit Suisse report today. I was interested to read their opinions on our markets.

Here's a snippet of what's said.

  • The market appears to have ignored the government.s continued control of parliament, with its 63% majority. Parliament now has an intelligent & eloquent opposition who will get heard.
  • We believe the opposition success was an .accidental. result due to a coincidence of protest votes by Malaysians of all races.
  • The opposition is an uncomfortable alliance held together by Anwar Ibrahim. The first act of the PKR controlled Selangor state government has been to declare the state an .NEP-free. zone.
  • It has so far been a peaceful process. The fighting will begin when opposition state governments interfaced with the coalition controlled federal government, causing transaction delays.
  • It is possible for the opposition to take control of parliament if it can persuade 30 MPs to defect or if invited back into UMNO.
  • The ruling coalition must reform to survive, in our opinion. It has, again, been given the mandate to do this. All eyes will be on PM Badawi.s cabinet line-up as to whether he is listening this time.

Market over-reacted
You would have thought there had been a military coup in Malaysia if you had simply observed the one-day 10% drop in equity prices following the general election. The fact that the ruling coalition retains a 63% majority in parliament appears to have been over-looked.

Why did the government do so badly?
In our view, it was an .accidental. result. Malaysia.s politics has historically been race based. The ruling coalition is dominated by Malays who have historically persuaded the Chinese & Indian minorities to support them as a better option to the obvious alternative, which is an Islamic government. In our view, protest votes by all three ethnic groups accidentally coincided to produce meaningful success for the opposition.

The Malays were generally unhappy with the level of obvious corruption (ironically visible due to a more liberal press) and inflation. Anwar Ibrahim was effective at hustings, by asking the crowd .hands up who has received a government contract?. He effectively used this to demonstrate that the government.s policy of affirmative action (NEP) has only served to enrich the political elite. The opposition also made the very safe, but popular, promise that they would reduce the price of petrol.

The Chinese were generally unhappy with the overt racial harassment evident at the UMNO assembly when the UMNO youth leader waived a dagger (kris) in a statement of defence of Malay rights. The Indians were generally unhappy. Having taken to the streets in protest over their economic marginalisation, the government responded with riot police & liberal use of the internal security act.

Who is the opposition?
The opposition is a disparate group comprising three parties, namely Anwar Ibrahim.s multi-racial justice party (PKR) which won 31 seats in parliament, the Chinese dominated DAP which won 28 seats in parliament and PAS, the Islamic party, which won 23 seats in parliament. The opposition won 5 of 13 states, with PKR dominating in Selangor, DAP dominating in Perak & Penang while PAS dominated in Kelantan & Kedah.
PKR, being a multi-racial party has to act as a unifying force within the opposition coalition. PAS has moderated its religious stance significantly due to the infusion of young blood, while DAP has always focused on protecting Chinese rights. While intellectually capable, it will not be an easy task. Indeed, it is fair to say that the opposition is probably not prepared for government.

An end to affirmative action?
The Anwar led PKR has already declared Selangor an .NEP-free. zone. He has long maintained that affirmative action should be for the benefit of all lower income Malaysians, regardless of race. While NEP reform has always been perceived to be an election loser, Anwar appears to have found an appealing angle to it which potentially could unlock Malaysia from this historic economic burden.

Business as usual in parliament, almost The ruling coalition still has control of parliament and therefore over the economy. This includes federal initiatives such as the GLC transformation process and other projects funded and driven at the federal level, such as the IDR in Johor. The main difference is that there is a meaningful, highly educated and eloquent opposition who will provide a check and balance in Malaysian politics that has been absent for years. This should help curb the excesses of the past.

A peaceful revolution, but the fighting has yet to begin All parties have reacted with great restraint folowing the shocking election result, such that there has been no violence. This is partly as a result of each race believing that it has secured election victory.

The real fight begins when opposition state governments have to interface with the coalition controlled federal government. There is real risk that each side may try & thwart the endeavours of the other party, in order to score points. This may cause delays in implementation of certain infrastructure and property projects and transactions given that land and water matters are controlled by the state.

Can the opposition ever gain control of parliament?
The key for control of parliament lies in East Malaysia, where Sabah & Sarawak contribute a whopping 25% of seats in parliament. If Anwar can persuade just 30 MPs to defect, then he would have control. It is always possible that Anwar could be invited to re-join UMNO (for the sake of unity) a possibility denied by all parties, but never say never!

What next for the ruling coalition
The ruling coalition must reform to survive. This election result again gives PM Badawi (or his likely successor Najib) the mandate to do just that. All eyes will be on his cabinet line-up to determine if he is listening. We would expect all .bad news. to be deferred for the moment, such as energy price increases.