Malaysia strategy

Maximum political pessimism

Event
Anwar Ibrahim was charged with sodomy today. He pleaded innocent and was released on RM20,000 (US$6,000) bail and a personal bond. Anwar will be contesting the by-election in Permatang Pauh on 26 August.
Anwar said an enormous injustice is about to be perpetrated. The Prime Minister said he asked the police to go on evidence alone but added: “Another person looking for justice is the victim. You forget Saiful. You think Anwar is more important.”

Impact
We are at the point of maximum political pessimism: The perception will be one of a political crisis, especially if there are demonstrations or rallies. If so, however, we think this is more perception than reality. As we pointed out above, freedom of the press has improved and continues to improve, as has freedom of speech, and so on.
Most investors caring less and less about politics: In our recent meetings with investors, no more than a quarter of our time was spent on politics. Only about half of them were in favour of Anwar becoming the PM, and among the other half, a number of them remember Anwar pre-1998, when he was Deputy Prime Minister and Finance Minister. We are reminded of what American comedian Will Rogers said once: "The more you read and observe about this politics thing, you’ve got to admit that each party is worse than the other. The one that's out always looks the best.”
Our view remains that we do not think it matters very much who is in power but political stability is the important thing. Important items on an investor’s checklist are:
§ Freedom of press, including alternative medias.
§ Freedom of speech, including that of the opposition leader.
§ Independence of the judiciary, including recent changes.
§ Rule of law, without use of excessive force (Anwar's party, the PKR, had to apologise to a press photographer who was allegedly assaulted by a group of PKR supporters when she was covering a speech by Anwar, and the PKR Youth vice-chief has had to guarantee the safety of the media).

Outlook
Whichever way Anwar’s situation unfolds, we believe that any MPs thinking of crossing over would think twice, given the recent events. As a result, it looks highly unlikely that Anwar will be able to become Prime Minister by 16 September as he had claimed he would be. Furthermore, with Muhiyiddin Yassin withdrawing from the UMNO presidential race, it looks as if the PM is secure in UMNO; he now needs to wage battle on one rather than two fronts.

The people may also be pleasantly surprised on 29 August, Budget Day, to find their economic situation improved and therefore may be less discontent. If that is the case, the political situation will likely improve from here.