Malaysia’s political risk premium

Peter Sengelmann, senior portfolio manager, Emerging Market & Asian Debt – Local Currency and Local Bonds at NN Investment Partners.

Welcome to 2016! This is the start of our regular column from Asia, where our Singapore-based investment experts share their insights on regional developments and trends. This month, our senior portfolio manager Peter Sengelmann shares his views on the opportunities in Malaysia, which had a poor run last year after suffering its worst political crisis in recent history.

Across the causeway from where we sit in Singapore, neighbouring country Malaysia had a dismal 2015. Not only did the commodities-exporting country have to grapple with plummeting prices of natural resources, it also suffered from its worst political crisis in recent history.

Najib Razak, the prime minister, became embroiled in a political scandal after deposits of nearly US$700 million from an unnamed Middle East donor found their way into his personal bank account.

The country’s anti-corruption agency said that the money was not siphoned off from debt-ridden state investment fund 1Malaysia Development Berhad (1MDB), whose advisory board the prime minister chairs.

Even so, the scandal pushed 1MDB bond prices down to 72 cents on the dollar in September last year as investors fretted about a possible default. There were also fears that Najib’s political party would be thrown into disarray amidst infighting and street protests calling for the prime minister’s resignation.

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