UK general election outcome won't affect ringgit, KL stocks

PETALING JAYA: The outcome of last Thursday’s UK general election is not expected to impact Malaysia’s stock market and currency, just like the result of last year’s vote on UK membership in the European Union (EU), which triggered Brexit.

UK Prime Minister Theresa May has announced plans to form a coalition government with the Democratic Unionist Party in Northern Ireland, after her Conservative Party lost its majority in the House of Commons.
AffinHwang Capital head of research Chue Kwok Yan told SunBiz that the general election outcome is in fact an “offshoot” of Brexit – the UK’s impending exit from the EU.

“If you look at what happened then until now, it didn’t really affect the market. The stock market has done significantly better than a year ago and, likewise, the ringgit weakened after the Trump election but it has strengthened now. Hence if you take the lessons from there, it shouldn’t have a material impact on the stock market and the ringgit.”

He added that, fundamentally, things that drive the stock market and the ringgit are more important than just the election outcome in the UK.

There were uncertainties on how Brexit was going to happen and affect the EU, as well as global growth, Chue said.

“So that has not changed. Those uncertainties are still there and have been reflected in the market and economic conditions now. There may be a knee-jerk (reaction) but things will still continue as they are, and things will continue to strengthen if global growth continues. The impact on Malaysia should be manageable,” he explained.

The research house projects the FBM KLCI to reach 1,813 points by year-end, and the ringgit to improve to RM4.10 to the dollar by year-end.

FXTM vice-president of corporate development and market research Jameel Ahmad said the Malaysian stock market should not be at risk to change or see further volatility in direction, while the aftermath of the UK election should not cause any movements in the main Malaysian stock market as it currently stands. 

At the moment, Jameel said, it appears that most financial asset classes are seeing the UK/Brexit issue as an independent event and it was unusual that apart from the pound, there was very thin volatility in other asset classes while the votes were being announced.

He added that there is no hiding from the fact that the UK has entered even more uncertain times than it was already facing, which means there will be more uncertainty in the markets and this could have some impact on riskier assets, such as emerging currencies.

“For now it appears that the ringgit will be unaffected, but Brexit will be an ongoing issue that will not go away anytime soon and we might need to revisit this topic later down the line,” Jameel told SunBiz.  

Last Friday, the ringgit rose slightly to RM4.2665; while the FBM KLCI closed 3.32 points higher at 1,788.89.