Political drama leaves investors jittery

Negative pressures may deepen if Anwar’s claims are correct and the PM refuses to resign, says analyst


INVESTORS reacted negatively to the heightened political risk as Opposition leader Datuk Seri Anwar Ibrahim claimed to have “formidable” and “convincing” support from MPs to form a new “strong” government just ahead of the state election in Sabah.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) dipped 9.3 points or 0.6% to 1,491 points yesterday despite Prime Minister (PM) Tan Sri Muhyiddin Yassin announcing a fresh RM10 billion stimulus package.

“From a sentiment point of view, it is definitely negative. Malaysia’s inability to get its act together from a political perspective has always been a thorn in investors’ sides and this will only accelerate that.

“Negative pressures may deepen if Anwar’s claims are correct and the PM refuses to resign, although if the King asks him to go, I doubt he will reject this advice,” Oanda Corp Asia-Pacific senior market analyst Jeffrey Halley told The Malaysian Reserve (TMR).

He added that markets are treading water at the moment due to a scarcity of action and adopting a wait-and-see approach in anticipation of further developments.

Halley also said investors are somewhat used to the murky nature of Malaysian politics.

“As long as the economic policy remains on track, investors are likely to give Malaysia the benefit of the doubt, as they are with the US/China geopolitics at the moment.

“Far more important to Malaysia are oil prices, an end to international travel restrictions due to Covid-19, China’s recovery and the global one, and the US elections, all of which are out of Malaysia’s hands,” he said.

The news, however, boosted trading with volume of securities exchanging hands rising to 8.45 billion units valued at RM4.32 billion.

Losers overwhelmed gainers 896 to 246, while 344 counters were unchanged and 602 untraded.

The index closed lower on selling of stocks like Hong Leong Financial Group Bhd and Petronas Dagangan Bhd, while defensive buying into Nestlé (M) Bhd, Hartalega Holdings Bhd and Top Glove Corp Bhd eased the path lower.

“The movements in the ringgit and KLCI have left me unfazed. Although both are underperformers across the session, Asian currencies are generally lower anyway with the US dollar stronger across the board.

“Both are lower by 0.7%, which is not indicative of a panic exit from Malaysian assets by either domestic or international investors.

“I would hazard that there’s quite a substantial hurdle of saying you have a two-thirds majority of MPs and proving it to the satisfaction of the Malaysian King,” Halley said.

He anticipates that economic policy is unlikely to change course regardless which political party holds the majority.

AxiCorp Financial Services Pte Ltd global chief market strategist Stephen Innes appears to concur with Halley, adding that “politics is the cloud that continues to hang over Malaysia’s capital markets”.

He said the political risk factor holds back stock market gains, has prevented the ringgit from making a full trip recovery post-Covid-19 similar to the rest of Asia’s foreign exchange and will certainly sour Malaysia as a prime destination for capital investment from foreign concerns.

“The timing couldn’t be much worse with the Malaysian Government Securities up for review in the FTSE Russell’s World Government Bond Index inclusion. I’m never surprised when it comes to Malaysian political ruckus.

“One thing to remember is that political risks tend to fade fast as regardless (of) who is in power it is unlikely to shift the economic direction or have an effect over central bank policy. So any selling would provide a good opportunity to buy,” he told TMR.