The conflict in Sabah between the followers of the Sultanate of Sulu and Malaysian forces may affect the popularity of Prime Minister Najib Abdul Razak and the upcoming general election in Malaysia, Bank of America Merrill Lynch (BofAML) said.
In its latest research note, dated March 7, BofAML said surveys conducted in January to February showed that Najib’s popularity dropped, driven by a decline in sentiment of Malay voters, while “dissatisfaction” with BN and the government rose.
“The ongoing Sabah (Lahad Datu) insurgency may also be complicating matters for PM Najib. Sabah is one of the strongholds of BN. Sabah and Sarawak contributed one-third of BN’s parliamentary seats in the 12th general elections,” the bank said.
According to the Election Commission, the conflict, however, has not affected the preparations for the upcoming 13th general elections on June 2013, BofAML said.
On Thursday, Malaysia rejected Sulu Sultan Jamalul Kiram III’s declaration of a unilateral ceasefire as fresh explosions and fighter jet flights were reported over Lahad Datu area in the eastern tip of Sabah.
More than 200 followers of Kiram sailed to Sabah last month to bring to the fore the Sulu Sultanate’s centuries-long claim over the territory.
Pakatan victory factored in
BofAML said the political uncertainty brought by the forthcoming elections in Malaysia is driving foreign investors into the debt market while local investors rotate out of the equity markets.
In its Feb 26 research note, BofAML said there was increasing interest on how to position for the general elections in view of the potential outcome.
“Nevertheless, looking at the recent price actions in FX (foreign exchange) and the equity market, it appears that investors have partially factored in the possibility of an opposition victory,” the bank said.
The Malaysian ringgit has depreciated by 154 basis points and the Bursa Malaysia KLCI has lost 3.8 percent year-to-date.
But this development could be increasingly attractive for investors to position for a “market favourable” election outcome.