• Thailand and Turkey to vote for a new government on Sunday (14th May)

• Foreign investors to opt for a ‘wait-and-see’ attitude

• Lack of solid drivers to dampen sentiment

Malaysia 1Q23 GDP surprise on the upside though this may not be sufficient to lift investors sentiment given the  overhang situation particularly with two general elections in key emerging economies (EMEs). Turkey and Thailand  will be choosing their new government on Sunday (14th May) and this could either ‘make or break’ investors sentiment  over EMEs. A strong government may boost sentiment though on the flip side, a mix or weak one will certainly push  investors to the sideline. To be fair, investors ‘love and hate’ relationship with general elections is well known particularly  with lighting speed news and hence, negative news flow which could easily unseat a strong government. Aside of  Thailand and Turkey, Argentina, Poland and Indonesia voters will also be heading to the ballot box with the latter due  to vote for a new president in February. Malaysia will also undergo its ‘micro election’ amid the six state elections that  are due to be held no later than end of July. These micro elections will definitely be an acid test for the unity  government particularly for the states that are controlled by the opposition (Kelantan, Kedah, Trengganu). Even for  the states that are controlled by the sitting government (Selangor, Negeri Sembilan, Penang) are not completely safe  given the still disgruntle voters over the rise in the cost of living that may turn their back from the incumbent government.  In a nutshell, the looming elections whether major or micro is negative to sentiment, pushing investors to rebalance their  portfolio and overweight on less risky asset, debt over equity. Note that Malaysia’s 10-year MGS yield has been dropping  steadily to 3.642% last Friday (12th May) against a month ago of 3.860% (12th April) and end of year of 4.067% (30th December 2022). That is a cool 42.5 basis points drop in yield YTD. This is in opposite direction with the OPR.

A less-than-thrilling sentiment will also be compounded by the US debt ceiling negotiation which show no sign of  resolution. In any case, we think the US debt ceiling will eventually be lifted though with spending sequestration (like in  2011) though the suspense and hence, negative news flow will only hurt sentiment further. Dollar Index has also been  trending upwards (12th May: 102.681; 12th April: 101.50), indicating investors sustained interest towards the safe haven  asset, primarily the US Treasury and Dollar. In sum, sentiment for the next two weeks will be dictated by several key  events namely the progress of US fiscal debt ceiling negotiation, the first quarter corporate earnings season and the  outcome of two key general elections in EMEs as aforementioned. Malaysia’s better-than-expected 1Q23 GDP is  expected to be a muted development as investors are expected to be more focus on the outcome of the looming state  elections.

Source: BIMB Securities Research - 14 May 2023