Islamic Finance

New government feel-good effect and Ramadan cushioned Malaysia’s economy from post-election shocks

Photo: People look at trading boards at a private stock market gallery in Kuala Lumpur, Malaysia May 14, 2018. REUTERS/Stringer

KUALA LUMPUR - As Malaysians opened their homes to family and friends to celebrate Hari Raya Puasa (Eid Al-Fitr) across the country over the weekend, conversations invariably turned to two subjects: the recent general election and the economy.

The country’s first change of government in more than 60 years, which took place on May 9—a week before the start of Ramadan—led many analysts to predict widespread financial turbulence and shocks to the economy. But perhaps the short space between these political and religious events has been serendipitous.

Ramadan is traditionally a sleepy time in the finance industry, when stock traders and fund managers could sit back and catch their breath. This year, the fasting month may have acted like a cushion to protect the markets from all the expected blows. Though post-election business has still been brisk, Ramadan’s torpidity has helped soothe the chaos that could have been.

“Turnover during Ramadan would usually dwindle to nothing,” Gerry Ambrose, chief executive of Aberdeen Islamic Asset Management, told Salaam Gateway, referring to market activity during the fasting month. “But this year we have had an orgy of activity by local and foreign investors. I believe that the retail element participated even more actively after the elections, so it was very different in that respect.”

Ambrose had predicted before the election that Malaysia would face “a lot of chaos” in the markets if the opposition were to take power, but there has been no maelstrom after that happened.

Even when the poll result was initially met by heavy foreign selling, which was then matched by substantial buying from overseas investors, “it hasn’t been panic,” he said. “The market actually closed up marginally for the first day or two.”


'Tremendous sales': New government feel-good effect making food vendors smile at a Ramadan bazaar in Malaysia


Across Malaysia, there has been a general feeling of optimism since the election as the new government has sought to open accounts that had been sealed by its predecessors to reveal the true state of the economy. Though the contents of these so-called “red files” indicated that government debt currently stands at over one trillion Malaysian ringgit ($250 billion)—far more than the 686.8 billion ringgit quoted by the outgoing administration—Malaysians appear enthused at being able to see the full picture.

“There’s a general feel-good attitude at this time of year anyway, and combined with the feeling of positivity after the election, it has had a good impact on the markets,” Dr Zulkiply Omar, senior research fellow at the Malaysian Institute of Economic Research, told Salaam Gateway.

“Having Ramadan so close to the general election will have boosted good sentiment among the rakyat (citizens). People expect to see change, and this is a positive change. In the short-term you will see a bit of recovery, but in the medium- to long-term, it will be better for business.”

Some economists have identified a “Ramadan effect” that pushes up stock performance, delivering substantially higher returns and less volatility during the month than during the rest of the year.

This anomaly stems from “optimistic beliefs that extend to investment decisions,” according to a leading paper on the topic that studied 14 predominantly Muslim countries, Malaysia included.

Dr. Jedrzej Bialkowski, an associate professor at Canterbury University in New Zealand who co-authored the 2012 study, believes this effect is still strong and is fuelled by the necessity for Muslims to have a positive spirit during Ramadan.

“Selling stocks means you disbelieve in someone’s ability to deliver performance. There was this argument that I kept coming across from people who work in the finance industry, that people refrain from selling during Ramadan. This naturally leads to an increase in stock prices,” he told Salaam Gateway.

Though the study covers a period from 1987-2009, Dr. Bialkowski believes its findings are still valid in the post-Recession world.

“There has been a bunch of studies that looked at our effect using different methodologies, which found strong support of our results. None was able to question the Ramadan effect which we reported back in 2012.”

Though the research was “very much applied”, Bialkowski acknowledges that traders and fund managers are unlikely to pick up on its findings in the real world unless they wield complex formulae across scores of data.


Daud Vicary Abdullah said he was certain that Ramadan has an impact on business and markets, but was unaware of Bialkowski’s “Ramadan effect” when Salaam Gateway put it to him.

The 30-year veteran of Islamic finance, who was formerly managing director of Hong Leong Islamic Bank and CEO and President of INCEIF, the world’s only dedicated post-graduate university for Islamic finance, said that fasting during Ramadan gives financial managers greater “mental sharpness” and encourages a more philanthropic approach to business.

“There is a focus of attention and thinking that, if we’re doing well, we should invest because we will get more blessings for what we are doing,” he told Salaam Gateway.

The recent election result has, he observed, “stimulated things and normal behaviour isn’t being followed”, compared to previous Ramadans when business activity would slow down.

“There has been intense public scrutiny and interest in what is going on politically, and what impact that may have on the economy. I think there is a lot more liveliness this Ramadan because of the election results, and Ramadan following on so soon. I suspect there has been some heightened awareness,” he said.

Some of the announcements made by the new government during Ramadan, such as the removal of the goods and services tax, that was widely blamed for the rising cost of living, and the scrapping of enormous infrastructure projects, should have made investors jittery. But the reality is that the markets have been far more sanguine than had initially been predicted.

It is impossible to assess how much of a calming effect the holy month has actually had on the economy, but there is no doubt that things could have been much worse, according to Gerry Ambrose, whose investment company has successfully weathered the storm.

“In Ramadan, people struggle at work, leave at 4.30pm, it’s a massive fight to get home to the suburbs in time to break the fast, and that’s what takes up a lot of people’s time. This year has been particularly hard as there’s been a lot of thinking to do. Yet still, Ramadan has been very helpful this year.”

(Reporting by Richard Whitehead; Editing by Emmy Abdul Alim

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Ramadan 2018