Election Boosts Malaysian Market

Malaysia’s shares, bonds and currency rose sharply Monday after the incumbent National Front’s general election victory diminished pre-poll political risk.

The ruling coalition Sunday won 133 of 222 parliamentary seats – compared with 140 in the previous election in 2008 –which is a comfortable enough margin to ensure policy continuity, fund managers and analysts said.

Prime Minister Najib Razak had sought a clear mandate to push through a $444 billion Economic Transformation Program, aimed at making Malaysia a high-income economy by 2020.

“The slimmer majority is in line with market expectation and is taken positively by investors because it means the National Front is still the government and there will be consistency in policies,” said Choo Swee Kee, who manages 700 million ringgit ($230.7 million) as chief investment officer of TA Investment Management Bhd.

The FTSE Bursa Malaysia Kuala Lumpur Composite Index opened 4.5% higher at 1771.62 and reached a record 1826.22; the price of 10-year Malaysian Government Securities rose, pushing the yield down to 3.348%; the U.S. dollar touched a 21-month low of 2.9860 ringgit.

“Malaysia’s [stock] market has underperformed regional markets in Southeast Asia because of concern over political risk; and with the general election now over, the risk premium will diminish,” said Andy Ong, head of research at Affin Investment Bank Bhd. 5185.KU +3.18%

Credit-ratings firms have long warned of Malaysia’s poor fiscal health, pointing to high debt and massive subsidies, which  they say undermine the government’s credit profile.

“Fitch looks forward to greater clarity on the government’s fiscal and economic policy program following Sunday’s elections,” Andrew Colquhoun, head of Asia-Pacific sovereigns at Fitch Ratings, said after the election.

The credit-ratings company had previously noted rising public debt ratios “may eventually exert negative pressure on the ratings,” Mr. Colquhoun said in a statement.

(Source: The Wall Street Journal)