Business expects short term volatility as Malaysia’s new PM sworn in

The Malaysian Ringgit fell against the US Dollar and stocks with Malaysian exposure dropped on Thursday morning following the unexpected win of the Malaysian opposition. The election of the Pakatan Harapan alliance, with 135 seats out of the 222 seat parliament, is likely to create economic and market volatility in the short term, but stability and growth in the long term, according to CIMB Chairman Nazir Razak in a Bloomberg interview.

Razak explained that markets will be volatile in the short term, as the result was unexpected and there is a degree of political and policy uncertainty. However he emphasised his belief that the transition of power will be smooth and that as economic institutions remain robust, the economy will weather short term uncertainty. Razak also suggested that the economy could benefit in the long term as the corporate and financial spheres becomes more separate from the government, creating a more stable environment for investors.

This view was shared by other analysts who agreed that despite short term volatility, the long term reform of governance and public institutions is now possible, reported CNBC. Analysts from Morgan Stanley in Malaysia have said that the result may increase the interest level for foreign investors who would anticipate change, said The Star.

Currently there is little is known about Pakatan Harapan’s full range of economic policies, and its electoral promises have lacked details. Therefore, businesses and credit ratings agencies have not been able to make a full assessment of the budgetary and macroeconomic impacts of new policies. Credit ratings agency Moody’s has said in The Star, however, that “some campaign promises, if implemented without any other adjustments, would be credit negative for Malaysia’s sovereign”. This would include the proposed abolishment of the GST, creating short-term deterioration in the fiscal position as it would decrease government revenue and increase reliance on oil revenue.

The other high-profile economic policy is Mahathir’s election promise to scrutinise deals made with Chinese investors. Whilst he supports the Belt and Road Initiative in general, he would be willing to renegotiate any deals in order to ensure they are compliant with Malaysia’s national interests. The new government will also likely launch a new probe into 1MDB.

The Malaysian stock market is closed on May 10 and 11, so the expected drops on the MYX will be apparent on Monday 14. Companies with market capitalisation of more than US$10 billion with government connections are stocks that are likely to decrease most, including Maybank, Tenaga Nasional, Telekom and CIMB, according to CNBC.