Malaysian stocks markets and the ringgit experienced a tumultuous session on Monday following the King’s decision to allow competing party leaders a one-day extension to form the next government amid uncertainty about the outcome of the ongoing horse trading.
Following a general election that resulted in the nation’s first-ever hung Parliament, markets regained some composure in the late afternoon as word of the deadline extension spread.
The benchmark Kuala Lumpur Composite Index fell 1.5% to a session low of 1,427.75 before recovering to settle at 1,447.96, a 0.9% loss.
The ringgit recovered about half of its losses to trade at 4.575 at 5 p.m., after falling nearly 0.8% to 4.5872 vs the US dollar, its worst drop in seven months.
The ringgit recovered most of its earlier losses against the Singapore dollar, trading at 3.3150 after falling as high as 0.47 percent to 3.332.
Malaysian government bond yields rose by three to eleven basis points during the day.
The newest development, which occurred about noon, was that Sultan Abdullah Ahmad Shah extended the deadline for party leaders and coalition chiefs to offer their prime minister candidate by one day. They have till Tuesday at 2 p.m. to do so.
This follows a surprising morning meeting between Pakatan Harapan (PH) chairman Anwar Ibrahim and his Barisan Nasional (BN) counterpart Zahid Hamidi, which has failed to produce Malaysia’s new administration, with Zahid claiming that his alliance’s supreme council has not chosen who to support.
Despite the market recovery, investor interest in Malaysian stocks remained subdued due to uncertainty over the result of the discussions.
Mr. Sri Ram, a global strategist at a prominent Malaysian bank, raised concern about the equity, bond, and currency markets’ volatility.
“However,” he added, “the level of foreign engagement is likely to be evident in the coming weeks, particularly if the winning coalition is able to assure solid fiscal and monetary policy direction.”
According to Malacca Securities, “sin” stocks such as gaming, alcohol, and cigarettes would suffer if the Perikatan Nasional (PN) coalition, led by the Islamist Parti Islam SeMalaysia (PAS), managed to form a coalition. Genting, Heineken, and Carlsberg Brewery all saw their stocks fall on Monday.
“While investors were already bracing for a hung Parliament scenario in the run-up to GE15, the unexpectedly strong showing by the Islamist party PAS equates to a significant structural step-up in the uncertainty surrounding Malaysia’s political future and policy direction regardless of which coalition prevails in forming the government,” Maybank Securities said in a note to clients on Monday.
However, Maybank noted that if the region plays a “kingmaker” role in the future administration, East Malaysian construction and oil and gas plays may benefit.
A party must have at least 112 legislative seats to create a government.
The PH of Datuk Seri Anwar has 82 seats, while the PN of former Prime Minister Muhyiddin Yassin has 73. Both are scrambling to gather smaller groups to cross the 112-seat limit.
As of Sunday night, all indications were that the PN had enough votes to form the government, having attracted numerous East Malaysian parties. Meanwhile, BN has 30 seats, which can be added to PH’s 82 to make the magic number.
Analysts predict that the Kuala Lumpur market, also known as Bursa Malaysia, will stay shaky for the rest of the week as investors try to figure out where things are going in terms of economic and corporate policies.
According to Mr. Alexander Chia, RHB Bank’s head of regional equity research, “this outcome represents a worst-case scenario for markets, with investor sentiment likely to remain clouded… depending on the duration of the power vacuum, the quality of the Cabinet members, and the parliamentary majority of the eventual government, which will determine its ability to institute reform.”
For More Stocks And Investment Related News, Click Here.
