Year of the Dog: Will Southeast Asia see regime changes?

With multiple countries in Southeast Asia conducting or likely to conduct elections this year, AsianInvestor asks whether there could be any major shifts in political power.
Year of the Dog: Will Southeast Asia see regime changes?

Across Southeast Asia, several countries are set to conduct elections over the course of 2018 or early 2019. This spate of political events offers the possibility that some countries in the region might witness power shifts. If that were to occur it could offer risk—or opportunity—to investors interested in the region. 

That possibility led AsianInvestor to ask as one of its Year of the Dog predictions: 

Will there be any post-election regime changes in Southeast Asia?

Answer: No

Don’t expect any post-election regime changes in Southeast Asia this year; they seem highly unlikely.

By all accounts, elections in Malaysia, Cambodia and, possibly, Thailand look set to entrench the relatively authoritarian regimes already in place.

In Malaysia, the United Malays National Organisation (Umno), which has held power in the country since it won independence in 1957, seems set to continue extending its hold for another term.

By law, the country has to hold elections by the end of August. But most political observers believe the 1Malaysia Development Berhad (1MDB) scandal, in which money was allegedly funnelled from the sovereign fund into the bank account of Prime Minister Najib Razak, hasn’t done that much to dent the latter’s political reputation, at least at home. Both 1MDB and the prime minister have denied any wrongdoing. 

An opposition coalition has nominated 92 year-old former premier Mahathir Mohamad as its prime ministerial candidate, but most experts think this Hail Mary tactic (Mahathir once headed Umno, and opposed the coalition parties he is now set to lead) is unlikely to change the election outcome, according to polling agencies. The Merdeka Centre for Opinion Research predicted the ruling Barisan Nasional coalition would retain a two-thirds majority in Malaysia's parliament.

Cambodia’s elections on July 29 also seem set to consolidate premier Hun Sen’s government. It’s another longstanding political force, having been in power for over three decades through various coalitions.

Its opposition has been effectively throttled, paving the way for yet another term for one of the world’s longest-serving prime ministers.

Meanwhile, at the time of going to press, there was little clarity whether Thailand’s military-led government will hold elections this year. 

Most political observers believe that no matter when the next elections are held (they would be the first since the military seized power in 2014), they are unlikely to bring back any supporters of the previous Thaksin Shinawatra-led government. Instead, they will probably see the election of whoever is most likely reinforce the military as the power behind the throne.

With all the regional elections expected to post predictable results, the consensus view is that investors should not expect to see any radical changes in policies. For now, that is not terrible news for investors. With global economic growth on an upswing, Southeast Asia continues to benefit from a pick-up in trade and exports.

Investors are nonetheless becoming more selective about the investment opportunities in this part of the world after last year's growth optimism and indiscriminate boom in financial markets. While Cambodian and Thai GDP growth looks set to improve on 2017 levels, Malaysia’s growth is expected to slow to 5.2% in 2018 from 5.8% in 2017, according to the World Bank.

That suggests more needs to be done in terms of economic and financial reforms to bump growth back into a higher groove. But with Umno likely to continue its stay in power, there is little incentive to stamp out the cronyism and corruption that exists in several Malaysian business sectors (Transparency International ranks Malaysia 55th on its 2016 Corruption Perceptions index, a drop from 50th in 2015).

Overall, AsianInvestor’s assessment is that while local politics might not hold any surprises for investors, the big challenges to Southeast Asia could come from external or global events in 2018.

As developed economies such as the US and the eurozone dial back on their monetary stimuli, the biggest risk to Southeast Asian financial markets could be a pullback on the massive liquidity that has been sloshing around the world. 

As the US dollar gyrates, expect more volatility in capital flows to Asia (both in direct and portfolio investments). Protectionist trade policies by the US Donald Trump administration may also pose a challenge to the export-oriented markets of Asia. 

And let’s not forget the wider geopolitical risks — ranging from escalating rhetoric between the US and North Korea to the Rohingya crisis in Myanmar that is increasing tensions among neighbouring countries. Some or all of these could yet rattle the outlook for this region.

Previous Year of the Dog predictions: 

Will China's debt burden become a major drag on the economy?

Will Bank of Japan's quest to create inflation succeed 

​Are European and UK securities a good bet this year?

Will the US Treasury yield curve invert?

Will Donald Trump still be president at the end of 2018?

What will be the best performing asset class, on a risk-adjusted basis?

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