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KUALA LUMPUR (BLOOMBERG) – Investors facing a pullback in Malaysian assets were rocked by a political turn that heralds turmoil for one of Asia’s most resilient markets.
Opposition leader Anwar Ibrahim dropped a bomb on Wednesday (September 23) by claiming he had enough support from lawmakers to form a government. Prime Minister Muhyiddin Yassin rejected the claim, saying his administration is firmly in control. The move increases the odds that the first polls will resolve months of political uncertainty, which could disrupt stimulus policies.
All of this means a long volatile journey for investors. Until recently, Malaysian markets had fared relatively better than their Asian peers in the wake of the pandemic, a resilience that is now being tested as coronavirus cases rise and political temperatures rise. The end of the six-month moratorium on loan repayments that raised the country’s benchmark stock index from its March low is also looming.
“The latest development serves as a possible trigger for more noise for the market,” said IG Asia strategist Jingyi Pan. Still, “given what Malaysia has been through so far, there has been a growing desensitization towards such power struggles.” , He said.
The benchmark FTSE Bursa Malaysia KLCI index is down 6 percent since reaching its annual high on July 29. The stock indicator rose 0.7 percent on Friday, following gains in Asia. The ringgit weakened in September after limiting a third month of gains as the dollar regained some traction.
FTSE Russell kept Malaysia on a watch list for a possible delisting from its World Government Bond Index, a move that may keep pressure on the central bank to continue implementing reforms to deepen markets on land.
After Datuk Seri Anwar’s move, the King of Malaysia will play a key role in what will happen next. The monarch plans to hold an audience with Anwar soon to give him a chance to prove his claim, after postponing a meeting on Tuesday for health reasons. There is no exact date yet.
POLITICAL STRUGGLE
“The political row at the top means that longer-term economic policies are on the back burner,” said Trinh Nguyen, senior economist at Natixis in Hong Kong. Those policies are “badly needed right now, with Covid-19 weakening sources of growth and exposing Malaysia’s less diversified economy,” he said.
Malaysia would have fared worse if it weren’t for the meteoric rise in rubber glove manufacturers. The KLCI is down 5.5% this year, compared to drops of more than 20% in Singapore, Thailand, Indonesia and the Philippines.
The collapse of the government of former Prime Minister Mahathir Mohamad in February weighed on Malaysian stocks and helped end the world’s longest bullish streak. Overseas sales of Malaysian shares accelerated last week, with outflows topping $ 5 billion (S $ 6.87 billion) so far this year, the fastest pace since 2015, according to data compiled by Bloomberg.
“The latest shift in Malaysian policy is only adding more uncertainty at a time when there are concerns about the global recovery due to rising infections in Europe,” said Khoon Goh, Head of Asia Research at Australia & New Zealand Banking Group. in Singapore. “If this current development drags on, investors may head back to the exit to wait, putting pressure on the currency.”
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