By Alan Tan, Head of ASEAN Equities at Lion Global Investors and PM of the Milltrust ASEAN Fund

Although the news on Malaysia looks dire for PM Najib, the country will not be dragged down by Najib in view of the following:

1.????? There is potential successor in the waiting (supported by Mahathir), ie DPM Muhiyiddin. So if he steps down or forced out, there will not be any chaos.
2.????? Malaysia is running on a monthly trade surplus and current account surplus, although these surpluses have decreased due to the lower oil / LNG prices. So as a country, the finances are strong as Malaysia is a net oil&gas exporter (the only one in Asia, if you do not include Brunei).
3.????? Total government debt to GDP is around 54% and if all the contingent liabilities are added in, close to 70%. And most of these debt are in MYR. Foreign denominated debt to GDP is less than 10%.
4.????? On 1MDB’s RM42bn debt, even if the entire amount is taken into the government’s book, it will only add another 4 percentage point to the debt to GDP ratio.

Hence despite all these political news, the rating agencies have maintained Malaysia’s sovereign rating. The news on Najib etc are obviously negative for the country but Malaysia will not go bankrupt (at least not in the short term) because of him.

I am of the view, Najib will step down as PM very soon. And there will be a relief rally in the Malaysian market then.