Kuala Lumpur, 9th November 2016
Comments on the Outcome of the U.S. Presidential Election
By Datuk Mohd. Najib Hj. Abdullah, Group Managing Director
Malaysian Industrial Development Finance Berhad (MIDF)
The conclusion of the U.S. presidential election and the installation of Mr. Donald Trump as the president-in-waiting is an outcome which will have tremendous repercussions on the dynamics of the global economy and financial markets.
Immediately, we have witnessed a surge in volatility in the equity, bond, foreign exchange and commodities market. Sentiment and confidence have been compromised, and the pendulum has swung even stronger. We can expect the world to move further away from a state of equilibrium in years to come.
IMPACT ON INTERNATIONAL TRADE
As part of his election manifesto, Mr. Trump has taken a strong anti-establishment stance especially with respect to globalisation and free trade. This is a threat to global growth, which is already depressed due to weak demand and oversupply.
Emerging markets are especially vulnerable if the U.S. were to adopt a highly protective stance towards international trade. Although Malaysia’s direct dependence on the U.S. market for its export has waned in the last ten years, the indirect impact via third countries especially China and Singapore would be significantly felt.
The years ahead would be increasingly challenging for the Malaysian economy. The election of Mr. Trump is the kind of global shock which may cause the world economy to go into a decline.
IMPACT ON FINANCIAL MARKETS
Emerging markets, especially in South East Asia, would be vulnerable to foreign sell-off as the uncertainties caused by Mr. Trump’s election trigger a flight of liquidity into safe assets. There is still a large overhang of global portfolio capital in Asia, and a heavy attrition of such capital will certainly have a significant ‘withdrawal impact’ on asset prices. Different countries have different degrees of resilience in managing such a situation.
In the case of Malaysia, there is a large foreign liquidity overhang in the government bond market, especially Malaysian Government Securities, but a relatively low foreign overhang in the equity market. MIDF Group is confident that the fundamentals of the country are strong enough to assure the foreign bondholders to remain invested in the country. After all, Standard & Poor's has just reaffirmed Malaysia’s sovereign rating of rating A-.
IMPACT ON INDUSTRIES AND COMPANIES
The impact on industries and companies is expected to unravel gradually over the years. The financial market has been expecting an adverse long-term impact on the dollar in the event of a Mr. Trump election, a fate similar to that befalling the Pound Sterling in the aftermath of Brexit. A significant change in the relative value of the dollar will inevitably affect the financials of many industries.
For example, a gradually weakening dollar would be positive on the bottom-line of many palm oil exporters as it will translate into higher Ringgit revenue. However, an increasingly protectionist U.S. will be bad for global trade and is expected to hurt shipping and port services.
Mr. Trump has also vowed to reverse outbound U.S. foreign direct investments, especially to China. This may have negative repercussions on Malaysian companies, especially in the electronics and electrical sector, which have positioned themselves in the global value chain.
One of the biggest threats to the industry of Mr. Trump’s election is his antagonism towards the Trans Pacific Partnership Agreement (TPPA). A scrapping of the TPPA would diminish the hopes for many export-oriented SMEs in the TPPA countries to have greater access to the U.S. market.
MIDF is now a diversified group with substantial investments in the financial services industry. MIDF Group has evolved into a stronger and bigger entity, offering a competitive and diversified range of financial services to include Investment Banking via MIDF Amanah Investment Bank Berhad, Development Finance and Asset Management via MIDF Amanah Asset Management Berhad.
For more information, please contact:
Group Corporate Communications
Tel: (03) 2173 8756
Fax: (03) 2173 8866