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KUALA LUMPUR: Investors facing a pullback in Malaysian assets have just been rocked by a political turn that heralds turmoil in one of Asia’s toughest markets.
Opposition leader Anwar Ibrahim dropped a bomb on Wednesday by claiming he has 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.
Malaysian markets had until recently 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.
Also looming is the end of the six-month moratorium on loan repayments that raised the country’s benchmark stock index from its March low.
“The latest development serves as a possible trigger for more noise for the market,” said Jingyi Pan, strategist at IG Asia Pte.
Still, “given what Malaysia has been through so far, there has been a growing desensitization to such power struggles,” he said.
The benchmark FTSE Bursa Malaysia KLCI index has retreated 7% since reaching its year-to-date high on July 29, falling below its three key moving averages.
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 domestic markets.
After Anwar’s move, the King of Malaysia will play a key role in what will happen next.
The monarch is scheduled to hold a hearing with Anwar shortly to give him the opportunity to prove his claim, after postponing a meeting on Tuesday for health reasons.
There is no exact date yet.
Political disputes
“The political dispute at the top means that longer-term economic policies are on the back burner,” said Trinh Nguyen, senior economist at Natixis SA in Hong Kong.
Those policies are “badly needed right now with Covid weakening sources of growth and exposing Malaysia’s less diversified economy,” he said.
Malaysia could have fared worse, were it not 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 stocks accelerated last week, with outflows topping $ 5 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 Ltd in Singapore. .
“If this current development drags on, investors may head back to the exit to wait, putting pressure on the currency.”
