India, Indonesia, the Philippines, Singapore and Thailand will all have election next year. The international investor spotlight will fall particularly on India and Indonesia, as their results — likely to be close calls — will bear the greatest impact on the global market.
One only needs to look at some of the surprising outcomes in Asia this year to get a sense of how quickly market conditions can turn.
Malaysia’s May 2018 election, which put 92-year-old Mahathir Mohamad in power as prime minister, resulted in the first regime change in the country’s history. Barisan Nasional, the coalition government, had been in power since Malaysia’s independence in 1957, and was generally expected to continue to lead the country, despite a myriad of problems including the infamous 1MDB scandal. But voters ousted Najib Razak, and turned to former prime minister Mahathir instead for change.
The new government quickly did just that, making budget changes, and cancelling, deferring or reducing big projects planned by the previous administration. For instance, Malaysia stalled the development of a MR55bn ($13.23bn) East Coast Rail Link, and cancelled the MR9.41bn Multi-Product Pipeline and the Trans-Sabah Gas Pipeline. A high speed rail project to connect to Singapore was also deferred.
Such shifting priorities and budgets are exactly what investors will be watching out for in the other forthcoming elections. Political power grabs and newly elected parties can bring changes to financial regulations and objectives. If goalposts are moved, then capital markets investors can easily lose out on opportunities that had previously looked certain.
India will also warrant a cautious eye.
Prime minister Narendra Modi’s Bharatiya Janata Party (BJP) faced defeat in key state elections this week — and many see this as an indication of how the national election will turn out next May. A turning tide against BJP could change the reform narrative in India. When Modi was elected more than four years ago, he made economic reforms a priority — something critics say have since fallen by the wayside. When the country heads to the polls, they will be judging Modi’s efforts, either giving him a vote of confidence to implement further changes over the coming years, or turning to a new leadership.
Indonesia’s election will have similar implications, as president Joko Widodo has made a concerted effort to revamp policies, change regulations and focus on infrastructure development. But the problems in emerging markets this year have weighed on the country, which may hurt Widodo during the election. Widodo’s opposition has already been vocal about his own economic plans, which will include cutting taxes and enticing investments and foreign business into Indonesia.
Of course, investors are always concerned about the headline risks of elections. Even in the West, the results of the Brexit vote or the US presidential election, among others, have turned countries upside down. In 2016, the market could have anticipated a long drawn-out Brexit, but few could have predicted the US-China trade war. Having learnt tough lessons from the past, some investors could very well pull back from countries hosting elections, and stay on the sidelines until results look more certain.
Unfortunately, there is no crystal ball, but what is clear is that the only certainty going into 2019 is that uncertainty will continue.
As companies and government agencies look at their next year’s funding plans, it would behove them to remain nimble and seize opportunities as they arise. For investors, agility will also be essential in the lead up to and in the immediate wake of elections. Markets will be in for a tough time.