(Bloomberg) -- Malaysia’s markets showed few signs of investor panic as trading reopened after Mahathir Mohamad swept to power in a surprise election outcome.
Stocks in Kuala Lumpur recovered from an early slump to fluctuate between gains and losses. While the ringgit weakened, its move was smaller than what was implied from forwards in the aftermath of last week’s result. Bonds fell.
“We have turned mildly positive over the short term,” said Danny Wong, chief executive officer at Areca Capital Sdn. “Most of the local funds have turned slightly positive with more clarity from Mahathir," he said, citing the appointment of key ministers and the formation of a council of five elders. “Confidence is returning.”
Mahathir has sought to reassure the markets by appointing a finance minister seen as a safe pair of hands, while saying he would lead a business-friendly administration. CIMB Group Chairman Nazir Razak, brother of ousted prime minister Najib Razak, expressed optimism last week that financial markets can weather the political transition. Still, Moody’s Investors Service and Fitch Ratings have warned of risks to the budget if a consumption tax is abolished and not offset by other revenue-raising measures.
Here’s a recap on market moves:
- The FTSE Bursa Malaysia KLCI Index of stocks fell 0.2% after dropping as much as 2.7%
- The ringgit weakened 0.9% to 3.9860 per dollar
- The yield on 10-year sovereign debt climbed 10 basis points to 4.23 percent
On Saturday, the central bank reaffirmed the strength of the economy and said it’ll continue to ensure orderly conditions prevail in onshore financial markets. The ringgit will reflect Malaysia’s fundamentals over the longer term, with the economy backed by a current-account surplus, healthy reserves and low external debt, Governor Muhammad Ibrahim said.
“The appointment of Lim Guan Eng as the minister of finance, as well as the formation of the Council of Elders comprising eminent Malaysians to provide advice to the new government was well received in Malaysia,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore. “While there will be near-term uncertainty over the fiscal impact of the new government’s policies, especially abolishing GST and reintroducing targeted fuel subsidies, higher oil prices will provide a boost to government revenues.”
Affin Hwang Asset Management Bhd. said before markets reopened that it was expecting a decline of as much as 8 percent in the first few days of trading post-election, while CGS-CIMB Securities lowered its end-2018 target for the benchmark index.
The Pakatan Harapan coalition had campaigned on a promise to scrap a consumption tax within its first 100 days in power, reintroduce gasoline subsidies and review toll road concessions. In a Thursday press conference, Mahathir emphasized his focus on expanding the economy and reducing debt.
Malaysian stocks had risen to a record close in April as global funds invested more than $600 million into local equities this year. The ringgit has benefited from a recovery in crude prices and was the Asia’s best performer over the past year before trading was suspended for the election.
