Oanda's Stephen Innes on GE14: Factoring stability from status quo

The 14th General Elections is upon us with nomination and polling day to take place on 28th April and 9th May, respectively. The market it seems, is fairly stable and the ringgit - well balanced, bringing with it the question: is the market expecting the political direction of the country to remain status quo?

Stephen Innes of the Singapore-based foreign exchange trading firm Oanda weighs in.

1MDB

“It is hard to imagine a change of government, following this election, considering that the Barisan Nasional (BN) campaign, is still drawn towards the rural folk and the Sabah Sarawak states” says Stephen Innes of the foreign exchange trading firm Oanda from Singapore.

The question is never on BN losing, but by how much will they win? This is what constitutes the rising political risk that market observers are currently looking at

“It is clear that to get the necessary majority from the 222 parliamentary seats, the BN leaders are doing what they do best, focus on the rural seats, and get the sub-urbanites to vote their way by giving out the traditional political largesse” he adds.

“With this, the market is expecting that BN will be returned to power, because the mathematics simply adds up,” says Innes.

“But of course, the question is never on BN losing, but by how much will they win? This is what constitutes the rising political risk that market observers are currently looking at."

“The 1MDB issue is currently viewed in the rear view mirror,” Innes adds.

“Whatever the story is, people have made their minds up on the conclusion, and the market is fully aware of this fact. That is why the 1MDB issue is a non-issue for voters because of the permanence of the conclusion that voters already have. But one has to note that the rural seats do not have 1MDB at their forefront thinking process. They are mostly thinking about crop prices, CPO prices, education, energy, and of course the weather. If the candidates in this election responds to these worries then by all means the voters would respond positively to them."

RINGGIT

When asked about the performance of the ringgit, Innes had an interesting view on the direction of the local currency.

“Despite surging energy prices, the USD-MYR spread has remained mired in a very tight trading range as traders are dealing with some shifting narratives,” Innes explains.

The ringgit sentiment will remain weak over the short term, especially when factoring in the election risk premium, as slight as that may be

“Higher oil prices usually play favourably for the ringgit, but with the US-10-year yields approaching three percent and a broadly firmer US dollar, the local note dealers are waiting for more favourable levels to buy the ringgit. So with the market not shifting attention from trade and geopolitical angst to higher US yields, the ringgit sentiment will remain weak over the short term, especially when factoring in the election risk premium, as slight as that may be."

"Over the longer term, however, medium-term macro conditions and low domestic inflation should make the MGS more attractive and support the ringgit over time,” he concludes.

GEOPOLITICS AND OIL

Globally, the oil prices and the US-bond yields tend to dictate the market movement. But geopolitical tensions remain a high consideration amongst traders and market watchers. So how will the market behave amidst this uncertainty?

“Rising oil prices and higher US yields suggest investors are likely to deal with increased volatility as a broad range of political, economic and financial events that is unfolding in the US. These include the US Core PCE, GDP price index, personal consumption data of which all are expected to set the tone,” says Innes.

“Nevertheless, politics will stay on the radar, as we should be in for a plethora of opinions during the build-up to the US historical meeting with North Korea in May."

Watch the full interview between Stephen Innes and Ibrahim Sani below.