AlwaysFree: Malaysia Assets Decline Amid Deepening Political Instability

• Saturday’s election triggered country’s first hung parliament
• Local capital markets may still benefit from reopening plays

According to media reports and Bloomberg’s article published on November 21, 2022, Malaysia’s stocks and the ringgit declined after Saturday’s election produced the country’s first-ever hung parliament, prolonging the political instability that has weighed on local markets for the past four years.

The benchmark KLCI Index fell as much as 1.4%, amid a broader slump in Asia. The ringgit was 0.6% lower against the dollar while the 10-year yield fluctuated.

The deadlock comes as the economy is on a fragile rebound, with rising living costs stirring discontent. Malaysia’s benchmark stock index remains more than 20% below its April 2018 record, reflecting the political uncertainty.

Veteran opposition leader Anwar Ibrahim’s reformist Pakatan Harapan and a pro-Malay rival grouping led by ex-premier Muhyiddin Yassin are competing to form the next government. Both are trying to cobble together a majority by persuading other parties to join their alliance, as each seeks to become the fourth prime minister in as many years. They have until 2 p.m. Monday to firm up alliances and present their choice of prime minister to the country’s monarch.

Still, investors may overlook the vote’s result as a hung parliament was the “default position for most participants,” said Stephen Innes, managing partner at SPI Asset Management. “The market will take the result in its stride as the political landscape is unlikely to change too much from the present murky situation.”

Innes said Malaysia’s markets could benefit from the recent rally in global equities fueled by bets that the Federal Reserve could signal a slowdown in the pace of rate hikes and by China’s plans to reopen its economy.

Investor sentiment toward Malaysia could “change dramatically” once the shape of the new coalition becomes clearer, said Nirgunan Tiruchelvam, an analyst at Aletheia Capital (Singapore) Pte. He recommends that investors focus on travel and tourism-related companies, the consumer sector and producers of commodities including palm oil, rubber and tin.

“Markets will not react that drastically” as the political uncertainty will fade once the new government is formed, said Danny Wong, chief executive officer of Areca Capital. “This will reduce uncertainty in the short term, say one year. Beyond that, one needs to play it by ear.”

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