Markets on tenterhooks as talks continue

 

It is unlike anything the Malaysian stocks and currency markets have ever seen, and unsurprisingly, investors are spooked.

The future direction of this country and its policies on business and investments will be determined in the next few hours.

Without a strong majority, the new prime minister will constantly be beset with uncertainty when formulating economic policies that will take the nation forward.

For the markets, the first signs are already not optimistic. As the horse-trading continued from the weekend, local investors took off, leading to a 17.78-point decline in the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) just 13-minutes into the new day’s trading session.

The ringgit fared no better, extending its decline from last week to open 290 bps lower at 4.5780/4.5880 against the US dollar from its close at 4.5490/4.5565 last Thursday.

The 15th general election last Saturday failed to yield the political stability that the country had wished for after three changes of prime minister over the last four years.

The Anwar Ibrahim-led Pakatan Harapan (PH) came home with 82 seats in the Dewan Rakyat ahead of the rest. But that was not quite sufficient to get him the simple majority of 112 in the 222-seat house.

That means PH will have to wait a while more to see if its top man will finally get to be prime minister, a job he has been eyeing for the better part of his political career.

His closest rival is Muhyiddin Yassin, whose Perikatan Nasional (PN) coalition took everyone by surprise by winning 73 seats.

Unlike Anwar, Muhyiddin has had his stint as the top guy, a position he took with the infamous Sheraton Move in 2020.

But under him, the conservatives in PAS could end up with a stronger hand in policy-making and its impact on the markets.

Foreign investors in the Malaysian stock market were even more uneasy. They were already dumping their holdings in Malaysian equities in the run-up to last Saturday’s polls, reversing a net inflow of RM425.62 million in the previous week, according to MIDF Research.

The net selling began on Tuesday, which saw the highest net outflow for the week at RM185.5 million. It dropped to RM79.9 million on Wednesday and RM62.2 million on Thursday.

The market was closed on Friday after the federal government declared it a national holiday to enable voters to return to their hometowns to cast their ballots.

Analysts expect the market to remain cautious while the country awaits the outcome of negotiations among political leaders.

The ringgit fared no better, starting the day with at 4.5780/4.5880 against the US dollar, or 290 bps lower than last Thursday’s close of 4.5490/4.5565.

It also weakened against other major currencies, namely the Singapore dollar, Japanese yen, euro and British pound.

Unlike the stock market, a dealer said the currency market would take the general election results “in its stride” given that the inconclusive outcome was not unexpected.

As Stephen Innes, managing director at SPI Asset Management pointed out to Bernama this morning, compromises would be essential and this could lead to better checks and balances in the new government.

A strong, smart government is needed to deliver firm long-term economic policy.

For a nation that has lived for more than six decades with an opposition that has seen scant success in keeping the sitting prime minister in check, this will usher in a new dawn. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.