KUALA LUMPUR – Malaysia’s currency and financial markets are tipped for a downward spiral tomorrow amid uncertainties brought on by a hung Parliament, but a quick rebound is expected if a government is installed within the week, said economists.
With the caretaker government not declaring a public holiday, the economists said trading in the country is expected to enter a brief period of volatility until a new administration has been set up.
A finance expert and institutional stockbroker in Singapore, speaking anonymously, said a dip in the capital and currency markets was expected owing to investors’ concerns about political uncertainty.
He said, however, that any decline in the FBM KLCI would be cushioned by Bursa Malaysia’s limit down, which would not exceed the maximum 10% depreciation of the current value.
On March 10, 2008, Bursa Malaysia triggered a circuit breaker when the composite index fell 130.01 points, more than 10% from the previous close of 1,296.33 points, following the political tsunami which saw the Barisan Nasional government lose its two-thirds majority in Parliament.
“At that point in time, people were much more invested in Malaysia. So the reaction to the election was so severe that the markets overcorrected themselves.
“But in the three months that followed, the markets began returning to normal levels.”
The stockbroker said the FBM KLCI will unlikely see a circuit breaker, although a 3% to 6% dip in value could occur by the end of tomorrow.
However, he said the index will correct itself to be in line with regional markets.
He added that foreign direct investments in Malaysia have already been at a low in recent years, and so a major sell-off was not necessarily on the cards.
He said investors had also been informed of the possibility of a hung Parliament following the polls and had also predicted a return of previous administrations.
“In other words, they are prepared for the return of a status quo.”
On the value of the ringgit, the stockbroker said it is expected to take a hit due to the indecisive poll results, but it is important to note that the situation has been excessively politicised.
“Ultimately, almost all currencies are weakening against the greenback as the US Federal Reserve has been reducing the number of dollars circulating in the market over the past 18 months.”
An economist with a government-linked agency said he believed there would be some knee-jerk reactions tomorrow, as markets typically turn negative when uncertainties appear elevated.
However, he assured that the impact would not be severe if a new government was formed promptly.
“The country has gone through various political upheavals since 2018 whereby we saw three prime ministers in one term,” the economist, who spoke on the condition of anonymity, said.
“What matters now is how soon the new government can be installed. If that happens, the possible selldown could be minimised.” – The Vibes, November 20, 2022
