How Could the UK Election Result Affect Malaysian Markets?

The UK general election saw Britain majorly divided over key political and economic issues, resulting in a Hung Parliament. Political events such as this are known to have potentially long lasting effects on global markets, and many have been left wondering what the potential economic implications of the election result will be. Here are some of the possible effects on Malaysian markets.

Investor Confidence

The UK general election result was undoubtedly a shock to Britain, as Theresa May’s Conservative government was widely expected to win with a significant majority. The pound, which was greatly weakened after the Brexit referendum last year, even showed signs of a steady recovery in the weeks leading up to the election.

With Malaysia being one of Britain’s major trading partners, there could be significant economic implications for both countries, which could affect investor confidence in the Malaysian markets.

Businesses

Malaysia performed exceptionally well in the first quarter of this year, with GDP growth reaching a two year high. This will have been good news for Malaysian businesses, which will be buoyed by a strong economy and greater opportunities for growth.

The potential instability from a shock election result could work in a number of ways. It could, for example, lead to lower prices for British goods, which would benefit Malaysian companies buying British products. On the other hand, damaged investor confidence could lead to limited funds for businesses, and thus more limited opportunities for SMEs in Malaysia. This would directly affect the economy and potentially Malaysian trading.

Volatility

Market volatility is despised by some and welcomed by others. For those trading forex, it can often lead to more profitable fluctuations in currency exchange rates, and the weaker pound could certainly be seen as an investment opportunity for those holding a stronger currency.

Surprisingly, however, the GBP/MYR exchange rate has remained remarkably steady, currently standing at 5.398 after having barely changed over the course of a year. This does not mean, however, that other aspects of the Malaysian economy and markets will not be hit by heightened volatility.

The Future

Perhaps the most significant effects of the election results will be felt later this year, when it becomes clear how the weakened UK government will cope with upcoming Brexit negotiations and a divided British public. As of yet the markets have not reacted, with very few indications of the UK election having any immediate impacts.

The main effects, if there are any, will probably occur when Britain’s position on Brexit becomes clear, as its exit from the EU is likely to weaken the ringgit. The markets are far more likely to react to a clear government position on Brexit rather than the current uncertainty surrounding Britain’s exit, which has existed since the 2016 referendum.

The UK election result has caused a great deal of uncertainty in some markets, but has had no significant effects overall. Since Britain is a major trading partner to Malaysia, the Malaysian markets could well be susceptible to further developments in the future, but as of yet remain relatively steady, with a stable currency and decent economic growth.