Malaysia's stunning election upset: investors react

A new government is to take office in Malaysia for the first time in its history. What does the fall of Najib Razak mean for investors and corporates doing business in the country?

It's a historic day for Malaysia as for the first time in its history an opposition party prepares to take the reins of power from the United Malays National Organisation and its coalition allies.

Prime Minister Najib Razak's defeat was confirmed in the early hours of Thursday morning, with 92-year-old former premier Mahathir Mohamad making a shock return to government.

The change of government and the uncharted territory ahead create a host of questions for international and domestic investors with an eye on the country. For example: how will a new government affect Chinese Belt and Road investment, which had been burgeoning under Najib? What will become of the costly, Chinese-funded high-speed railway to Singapore and other keynote infrastructure projects put forward by Najib? Will the roles of prime minister and finance minister, both held by Najib, now be split?

Market reaction domestically will not be clear for several days: Thursday and Friday have been declared public holidays, and all domestic financial institutions and exchanges are closed until Monday, according to the central bank

This article will be updated throughout the day as more reaction comes in.


  • The election casts doubt over major infrastructure projects
  • The Ringgit is expected to come under heavy pressure
  • The abolition of the GST is a sovereign credit risk, but it's doubtful whether the move will go ahead

Andrey Kuznetsov, credit portfolio manager, Hermes IM

"As a result of BN loss, there will be a small negative for Malaysian credit and we would expect a weaker MYR. Investors will require a higher compensation for policy uncertainty and will watch closely if the fiscal deficit on the back of implementation of campaign pledges will lead to higher than expected sovereign debt issuance , which could drag the spreads wider.

"However, Malaysian hard currency credit market is almost entirely investment grade, which makes it less sensitive to market uncertainty.

"The opposition has proposed reviewing the GST and fuel subsidies which have stabilised Malaysia’s fiscal finances, helping maintain current credit rating and support confidence of foreign investors.

"Additionally, the review of mega projects with China will put significant FDI flows at risk and reduce Malaysia’s growth potential.  

"Longer term, this could prove a positive as it gives Malaysia an opportunity to deal with institutional issues like corruption and improve governance at both government and individual company level."

Anthony Chan, chief investment strategist for Asia, Union Bancaire Privée

"While the news is excellent for democracy, market uncertainty is likely to linger as the new four-party ruling coalition has hardly any solid economic policy agenda besides scrapping the unpopular GST system. However, the good news is that Malaysia is the only oil play in Asia.

"Unless the equity market is going to be much oversold, it may take a while for any new policy announcement (if any?) to drive sector allocation. In the fixed income space, we believe that Malaysia’s A3 sovereign rating is solid but an upgrade is not likely in the pipeline.

"Despite further upward pressure from US treasuries, there is little reason for a domestic rate hike given favorable prevailing inflation trend and actually very high real rates/yields domestically (170bp for policy rate and 280bp for 10Y bond yield) even though economic growth has accelerated steadily over the past year."


Gerald Ambrose, chief executive officer, Aberdeen Standard Investments Malaysia

“It’s a new political dawn for Malaysia, which may see its first ever change of government since its independence from the British in 1957. This was a stunning election outcome that few would have predicted. We would expect some market volatility from the election result and possibly some spillover impact on investments. It is likely that larger companies, many of which are government-linked, will bear the brunt of any index-linked selling which might take place in the near term.

“More broadly, some of Pakatan Harapan’s (PH) election pledges may have diverging impacts on the share prices of specific sectors over the short term. PH’s intention to review all infrastructure mega-projects may lead to some initial selling in the construction and cement sectors, while its agenda to mitigate high living costs may enhance consumer sector stocks, such as food manufacturers, consumer staples and retail plays. 

“Over the medium to longer term, we think the election outcome reflects a growing level of political maturity and respect for democracy that would be beneficial for the country’s appeal to foreign investors and economic prospects.”

Alicia Garcia Herrero, Asia-Pacific chief economist, Natixis

"My take on it is extremely positive, not only because it confirms the importance that Malaysians’ attach to the future of their country and their own welfare despite the heavy weight of history, which would have called for political continuity.

"More importantly we should not see this as a one-off positive credit event, which will soon be diluted by the populists announcements made by Mahathir during their campaign, especially as concerns the scrapping of the low – but still annoying – GST tax introduced by Najib. I think this reading of Malaysia’s electoral results is somewhat short-sighted.

"Beyond all the negative aspects about Najib’s tenure (corruption and social stagnation being the most obvious ones), one thing cannot be denied, namely the improvement in Malaysia’s economic management.

"After 2015’s massive negative shock, stemming from the collapse of commodity prices, Malaysia managed to get its act together and keep quite high growth rates  - especially for a middle income country like Malaysia.  In addition, fiscal consolidation has continued with a reduction in the budget deficit from over 5% at its peak to 3% today. Finally, inflation is relatively under control and the current account is in surplus. Great  starting point for Mahathir from a macroeconomic perspective."


Dwyfor Evans, managing director, head of Asia Pacific macro strategy, State Street Global Markets

“We consider this a largely idiosyncratic event and thus see limited spillovers to other regional markets. Malaysian assets have come under pressure on a potential directional change in policy (the GST is a case in point).

"However, any escalation in policy uncertainty should not mask a number of tailwinds for the ringgit, such as Malaysia’s surplus status, rising commodity prices, high absolute and relative yield and attractive currency valuations. This implies that a strategy to fade a weaker MYR makes sense.

"Foreign interest in Malaysian government bonds (MGBs) remains elevated and despite some negative soundings from the ratings agencies, we are not convinced that this is an event that necessitates a reassessment in bond market conditions in Malaysia. In other words, we see limited fallout from the election.”


Jamus Lim, economist, Thirdrock Group

"In the short run, volatility should increase, with depreciation very likely because of two factors: Mahathir’s policy promise to abolish the GST and reinstitute (in some form) fuel subsidies will weaken the fiscal position, and his historical animosity toward currency speculators will sour sentiment.

"In the longer run, it really depends on the sorts of policies that Pakatan Harapan pursues. If major infrastructure projects are stalled or cancelled, this could further negatively impact the economy and the ringgit, but if it is accompanied by renewed fiscal rectitude – due to addressing corruption-related leakages, say – then the ringgit could ultimately benefit.

"Similarly, if the new administration does eventually pursue serious governance reform, the growth effects of a more robust institutional environment could well mean a more positive longer-run trajectory for the currency. Investors are always best served by allowing political shocks to play themselves out, and make portfolio decisions only after the dust settles and the new policy platform becomes clearer. This is especially the case  since the shape of the new administration itself remains uncertain. Sure, investors with equity exposures to Bursa Malaysia may have to endure some short-term volatility, but sober investors will need more information in order to credibly assess the implications of new policies on the economy and markets."

Eddy Loh, senior investment strategist for Asia Pacific, Credit Suisse

"For now, the downside pressure on both the MYR and Malaysian equities will be dominant given the uncertainties – mainly over the transition to the new government and the policies it will likely pursue.  Nevertheless, Malaysia’s economic fundamentals have been robust and a rising oil price is an added positive as the country is a net oil exporter.

"The question is therefore how long it will take for Malaysia to get through this political transition phase. To that end, the new government can and should move quickly to provide clarity and demonstrate its members can work harmoniously together. Naming a cabinet will be a good start, followed by a detailed policy agenda particularly on the fiscal front (including GST) as well as China relations and the related infrastructure projects.  Notably, Dr Mahathir and Anwar Ibrahim, are seasoned veterans at government and are fairly well known to the international community. We thus see the main challenge for the government as demonstrating its ability to function well.”


Prakash Sakpal, Asia economist, ING

"The lingering political and economic risks will weigh on investor confidence and performance of local markets, especially the Malaysian ringgit (MYR) for some time, probably through the end of this year. The MYR has lost 2.2% of its value against the US dollar since early April. Besides the increase in political noise since the announcement of elections in early April, the return of the USD’s strength was also responsible as reflected in across-the-board weakness in Asian currencies since. We now see USD/MYR breaching the 4.00 level within the next three months and ending the year above that level.

"The economy has been doing well since last year and local financial markets have outperformed relative to their emerging market counterparts, for which we credit a positive terms of trade shock from rising global commodity prices, particularly the price of oil. Considering recent geopolitical developments, the upward oil price trend is your friend. 

"Barring any unfriendly policy shifts, Malaysia’s sound economic fundamentals should sustain as the main positive for investors and markets.

"Among other economic risks, one could anticipate Mahathir re-assessing a multitude of foreign investment projects launched by the previous administration, as well as re-opening the investigation of the 1MDB corruption scandal in which former PM Najib was allegedly involved. Moreover, the previous Mahathir regime was known for restrictive economic policies, prohibiting free flow of capital to and from Malaysia in the aftermath of the 1997 Asian crisis."


Jalil Rasheed, investment director at Invesco

"The market had factored in a win for the ruling coalition so there will be some outflows on expectations of policy changes. Any impact will be short term as the new government and their reform agenda (which includes institutional reforms, and review of one sided infrastructure deals) takes shape. These longer term reforms are much needed structural change that we feel Malaysia has been lacking past two decades.

"Construction sector will be most impacted because the new government has announced that it will review most of the infrastructure projects. Stocks which are politically linked like certain oil & gas names will also be impacted.

"Institutional reforms should lead to more independent public institutions like attorney general chambers, anti-corruption agency and judiciary. There are also plans to remove political involvement in business and removal of politicians in government linked institutions. All these are positive steps for corporate Malaysia which we as investors are looking forward to.

"There will be some short term fiscal imbalance as the new government starts implementing populist measures that were promised. But longer term if they implement the reforms promised, I see this as deficit reducing due to greater transparency and governance."

Aarti Shah, equity analyst, Morgan Stanley

"For equities, we expect market volatility to rise but we cannot rule out this raises the interest level for foreign investors (typically underweight the market) anticipating change – a potential positive for multiples currently at 16x P/E.

"Key policy differences include rolling back GST, introducing some fuel subsidies and reviewing some infrastructure projects. Malaysia has been the second bestperforming Asean market year-to-date, outperforming MSCI Asia ex-Japan by 4.2% on foreign equity inflows of $0.9 billion."  

Tuan Huynh, Asia-Pacific CIO, Deutsche Bank Wealth Management

"The new government may implement some expansionary fiscal policies (or populist policies) in the first year in office targeting the lower-income households.These measures could lead to deterioration of Malaysia government’s fiscal position. Due to the uncertainty in economic policies during the power transition, Malaysian economic growth is likely to slow in the coming year. Therefore, the stock market may take this news negatively. We are likely to see weaker stock market performance on Monday.

"In the medium to long term, however, this surprise election could be positive to Malaysia’s economy. It could provide a good chance for Malaysia to solve some institutional problems in government. The new government may be able to address some of corruption problems in old government and achieve higher efficiency in policy implementation. This will be positive to the economy in the long term. Therefore, foreign hot money may flow out of Malaysia in the short term due to uncertainty. However, it may flow back to Malaysia again when there is clearer policy directions from the new government."

Sue Trinh, head of Asia FX strategy, RBC Capital Markets

"There is no precedence for an opposition win and the kneejerk reaction to the uncertainty has seen a sharp jump in USD/MYR NDFs (non-deliverable forwards) –  one month jumped by  around 2.5% to 4.10.

"We really need to get greater clarity around PH's policies. PH pledged to implement 10 major policies within its first 100 days of governance - such as the abolishment of GST, reintroducing the petrol subsidy and increasing the minimum wage to MYR1.5k and to review mega projects, in particular those funded by China (which are estimated to be worth  around $38 billion).

"On the face of it, PH's policies would risk a wider budget deficit, reversing the BN government’s progress in cutting the budget deficit from 6.4% in 2009 to ~2.8% by 2018 and a commitment to achieve a balanced budget by 2020.

"The Sino-Malaysian relationship under Mahathir bears monitoring. Malaysia is a key strategic land and sea hub in China’s One Belt, One Road initiative.

"Under Najib, Malaysia grew closer to China economically and politically seeing China grow its share of FDI into Malaysia significantly. However, this raised many concerns over Malaysia’s sovereignty and became a key issue in election campaigning. Mahathir has pledged that Chinese investment in Malaysia will face much greater scrutiny, citing Sri Lanka as a country that “lost a lot of land” because it couldn’t pay back money from China and, “We don’t want to sell chunks of this country to foreign companies who will develop whole towns”.

"USD/MYR NDFs may test 4.15 in the short-term, but we think the MYR is still undervalued from a real effective exchange rate (REER( (and nominal effective exchange rate (NEER)) perspective. MYR has scope to outperform the region once the dust has settled with steady domestic growth path amid lower inflation. There is upside risk to our 3.93 end-2018 forecast (4.0 end-2019), but we are for now reserving judgement until we see Mahathir’s policies fleshed out in greater detail."


UBS chief investment office

"Foreign investors' ownership of Malaysian Government Securities (MGS) has recovered to 44.6% (MYR 162.8bn, $40.7 billion) from the trough of 38.5% in March 2017, although it is some distance from the peak of 52.25% in October 2016. Some outflows from MGS should be expected under the circumstances, especially if the new government were to follow through with its pledge to abolish the GST.

"As the MYR comprises around 12% of the Singapore dollar's (SGD) tradeweighted basket of currencies, any pronounced weakness in the MYR is likely to hurt the SGD as well. A rise in USDMYR to 4.15 would translate to a 0.6% decline in the SGD. Likewise, Singapore companies with sizeable Malaysian exposure may be negatively affected in the short term. For equity investors, some short-term weakness in the Malaysian stock market is also likely, with government-linked companies affected more than others. PH has previously called for a strategic review of all large-scale infrastructure projects, so construction-related stocks may face pressure over the possibility that some projects may be canceled or revised. We remain underweight Malaysia within our Asia tactical asset allocation.

Anushka Shah, VP-senior snalyst, sovereign risk group, Moody's

"The opposition’s win in the parliamentary elections held on Wednesday 9 May marks uncharted territory for Malaysia because the country has never witnessed a transition of power away from the Barisan Nasional since its independence in 1957.

"Little is known about the opposition’s full range of economic policies, and its electoral pledges have lacked details that would allow for a full assessment of their budgetary and macroeconomic impact.

"Some campaign promises, if implemented without any other adjustments, would be credit negative for Malaysia’s sovereign. These include a proposed abolishment of the GST which, without offsetting measures, would increase Malaysia’s reliance on oil-related revenues and, in the near term at least, narrow the government’s revenue base. Another policy pledge, the reintroduction of fuel subsidies, would also distort market-determined price mechanisms, with effects on both the fiscal position and balance of payments."


Aninda Mitra, senior sovereign analyst, BNY Mellon Investment Management

“The Malaysia election outcome is a huge upset, no pollster was expecting this. This upset ranks up there with Brexit and Trump election.

“I believe the Ringgit will come under pressure as policy continuity will come under a cloud. The Pakatan Harapan led by an ageing Mahathir has sworn to dismantle GST [goods and services tax] and bring back subsidies and raise minimum wages.

“I think there will be short term volatility. It is a significant course correction following the corruption under Najib. However, I can’t see realistically how they can unwind GST. It contributes as much as around one quarter of total federal government revenue and cannot be easily substituted by other revenue sources. The bottom line is that while a long term fix of governance, institutions and public life is now in sight, near term policy uncertainty will be high. That will take a toll on the Ringgit at least until more clarity emerges.”

Vincent Khoo, analyst, UOB KayHian

"Hopefully, the market sell-off may not be as deep as feared since [Mahathir's Pakatan Harapan party] quickly obtain the royal pronouncement as the rightful government, while declaring a two-day cooling-off holiday can provide some leeway for PH to ensure the investment community that it would pursue a business-friendly policy.

"The most impacted stocks could include perceived politically-linked companies (DRB-Hicom, George Kent, MyEG) and selected mega projects’ beneficiaries on concerns that PH may want to review pricing or defer some mega projects."

Madeleine Kuang, portfolio manager, Fidelity International

"The Malaysian election delivered an unexpected surprise and while the market is closed, the reaction is telling with the ETF down 9%. Short-term, expect uncertainty to linger with the key player being deputy PM Anwar [Ibrahim, who is lined up to take over from Mahathir], his ability to keep the government together and deliver on the election agenda. Hence, market movements likely to be unpredictable. Longer term, the outcome is positive as Malaysia starts off on a renewed slate, however getting the economy back on track is critical."

Bryan Collins, head of Asian fixed income, Fidelity International 

"Back in the day, Mahathir was a pragmatic person and is less likely completely close the economy. After the initial kneejerk reaction of all fixed income asset classes, credit will likely be anchored by rating agency expectations. Inflation dynamics in the near term support lower rates for longer, so we would look into buying back our short local rates positions. MYR is more volatile to these uncertainties, but a lot of speculative positioning has eroded away.”

Want to know what's next for Malaysia? Two forthcoming events will offer invaluable insights.

AsianInvestor hosts its Malaysia Global Investment Forum in Kuala Lumpur on June 26. For more details contact Terry Rayner via email or on +852 31751963.

Corporate Treasurer hosts its Corporate Treasury and CFO Summit in Kuala Lumpur on June 27. For more details contact Vicki Shaw via email or on +61 425 246 683.

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