Malaysian markets shake off early panic

The Kuala Lumpur Composite Index dropped 2.6 per cent soon after the opening bell, but shares rallied to close 3.91 points higher at 1,850.42.
The Kuala Lumpur Composite Index dropped 2.6 per cent soon after the opening bell, but shares rallied to close 3.91 points higher at 1,850.42.PHOTO: EPA-EFE

There was an early sign of panic yesterday when Malaysian financial markets opened for their first day of trading after last week's stunning election result, but investors soon righted the ship.

That touch of nerves sent the Kuala Lumpur Composite Index down 2.6 per cent soon after the opening bell, but shares rallied to close 3.91 points higher, or 0.21 per cent, at 1,850.42.

It was a similar story in the currency markets. The ringgit weakened to 2.99 against the Singapore dollar early in the morning, but strengthened to 2.9630 by 6pm.

Mr Jameel Ahmad, global head of currency strategy and market research at FXTM, said: "The outside view is that there has been a relatively smooth transition to power for Mahathir Mohamad, and as long as this continues to be the case, it will provide an opportunity for the ringgit to recover."

However, Moody's vice-president Anushka Shah, a senior analyst at the sovereign risk group, said there is still little clarity on the Pakatan Harapan coalition's economic agenda beyond credit-negative promises such as abolishing the goods and services tax and resurrecting fuel subsidies. Malaysia has an A3 sovereign rating from Moody's, with a stable outlook.

"Fiscal discipline is important to instil market confidence," Ms Shah added, noting that nearly 30 per cent of outstanding government securities and Bursa Malaysia equity are held by non-residents, "which leaves the sovereign susceptible to swings in capital flows and investor sentiment".

DBS currency strategist Philip Wee and economist Radhika Rao also had concerns over the ringgit, noting that the offshore market has forecast a softer rate "on populist policies promoted by the new government".

"In our view, the ringgit's outlook has already weakened on domestic factors that will lead it to give up this year's appreciation," they added.

Mr Mohamed Faiz Nagutha, a Singapore-based Asean economist at Merrill Lynch, also voiced his concerns about populist policies, saying: "The key concern among investors is that (they) threaten to hurt Malaysia's fiscal position in 2019."

However, he noted that the impact was likely to be marginal, "at less than 0.5 per cent of GDP".

CGS-CIMB analysts lowered their end-of-year target for the Malaysian bourse from 1,880 points to 1,820, while UOB Kay Hian held to its earlier call of 1,830.

Analysts are keeping their eye on first-quarter gross domestic product figures due on Thursday. These are expected to be up on last year but down from the 5.9 per cent growth in the previous quarter.

A version of this article appeared in the print edition of The Straits Times on May 15, 2018, with the headline 'Malaysian markets shake off early panic'. Print Edition | Subscribe