Surprises from Malaysia Elections and Korea Peace Talks

May 13, 2018

Surprises from Korea Peace Talks and Malaysia Elections Results

It was just a couple of months ago when the North Korean regime conducted nuclear tests and shot intercontinental ballistic missiles over Japan. Colorful rhetoric were exchanged between President Donald Trump and North Korea’s Kim Jong Un, fancy name calling from “dotard” to “rocket man” were frequently used on one another. It was hard to imagine that the two could see eye to eye with one another, let alone sitting down on a table discussing about world peace and denuclearisation in the Korean Peninsula!

On 27 Apr 2018, leaders of both North and South Korea met at the DMZ and promised ending the war between the two bordering nations. Jokes and re-conciliatory words were shared between the leaders.   

And Donald Trump finally decided to end speculation and confirmed that he will meet Kim Jong Un in Singapore on 12 June.

The chart above shows the weekly USDKRW. One can see that the currency pair did not move much even though the North and South Korea meeting was arguably historic and significant. Somehow, the markets remained muted. Perhaps, everyone is used to politicians bantering, bickering and then making up?

Or they are not convinced that all is well until the “dotard” meets “rocket man” and they walk out shaking and hugging one another after a few rounds of Singapore Sling?

In the week, we witnessed another historic event that shook a nation and possibly many others. The ruling party Barisan Nasional in Malaysia was dumped by the opposition that was led by a 92 year old who also happens to be the ex Prime Minister and ex Barisan Nasional leader. Dr Mahathir came out of his retirement to challenge his one-time protege and effectively ending the incumbent party’s 61 years in power!

Many analysts and media partners were caught wrong footed, even an airline company had to repaint its airplanes and the CEO making a formal apology after the results ended differently from its initial pledge of support to the previous regime!

The markets were livid about the results, at least initially. The USDMYR pair shot up instantly, breaking the psychological barrier of 4.00 and was touching 4.05 levels before retreating to around 4.00 levels.

Market Reactions to the news

There are many reasons as to why the currencies behaved very differently, market liquidity, players sophistication, real impact of elections versus politician meetings and a host of reasons.

However, for Corporate Treasurers it only sum up the difficulties of our roles and responsibilities. Not only do we need to have a set of robust hedging strategy but we are required to be political scientists!

One needs to be discerning between speculation and realities. For the Korea meetings, while we welcome the initiatives taken by the respective leaders - we have to be mindful that these are just political posturing and mere rhetoric. Nothing is confirmed until we see real concrete steps taken. Although i do hope that peace will prevail ultimately, but pragmatically, it is hard to be overly bullish on KRW solely based on these events.

For the Malaysian elections, it was a surprise. Notwithstanding, it was also a reality.  It hit many very badly, that some had to resort to stashing their collection of personal effects overnight! The reaction of the markets to such real events then caused unusual spikes or dips. It is similar to Brexit and many other surprises. 

The problem is, how does one prepare for such surprises?

It is difficult, but one needs to know his/her positioning, is it long or short term in nature? For a Corporate Treasurer, probably you need to be more conscious if you are trying to hedge your cashflows or balance sheet? For a trader trying to generate Alpha, such events are a potential bonanza - of course depending on your initial positioning.

What was it for you?

about author

Seng Ti is currently heading a Treasury & Finance team in a MNC and is serving as the President of the Association of Corporate Treasury (Singapore) aka ACTS. He enjoys reading and discussing about current affairs, politics, life, wine and lives a normal life with his wife and 2 young kids.