Malaysia: Currency, Stock Volatile As Vote Ends In Hung Parliament

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Facts

  • Malaysia's stock market and ringgit currency plunged in early trade on Monday, after the nation elected a hung parliament for the first time in its history over the weekend.
  • The benchmark Kuala Lumpur Composite Index fell by up to 1.5%, while the ringgit dropped almost 0.8% against the US dollar before recovering following Sultan Abdullah Ahmad Shah's decision to grant rival party leaders a one-day extension to form a new government.
  • This comes as the opposition-led Pakatan Harapan (PH) coalition and the Perikatan Nasional (PN) coalition have each claimed to have enough support among lawmakers to form an administration, despite both failing to cross the 112-seat threshold in Saturday's national election.
  • According to results from the Malaysian Electoral Commission, Anwar Ibrahim's multi-ethnic PH secured 82 seats out of 220, while former Prime Minister Muhyiddin Yassin’s Malay-based PN won 73 seats.
  • Meanwhile, the Ismail Sabri Yaakob-led ruling coalition suffered its worst electoral defeat ever. It has secured only 30 of the 178 seats it was contesting, with voters reportedly turning to the PN and the conservative Islamic party PAS instead.
  • This first hung parliament adds new turmoil and uncertainty to a country that has already seen two new prime ministers in less than two years.

Sources: Reuters, Straits Times, Al Jazeera, CNN, BBC News, and New York Times.

Narratives

  • Narrative A, as provided by FMT. All coalitions are market-friendly and significant political unrest is unlikely to occur in Malaysia. However, this electoral uncertainty will inevitably create economic turbulence, continuing to affect the ringgit and stock market ahead of what economists anticipate will be a difficult year. To make things worse, the next government may prioritize implementing populist policies to stay in power following an inevitably gloomy term.
  • Narrative B, as provided by The Star. A hung parliament should be no surprise as rotation governments have, more recently, become commonplace. Volatility may indeed see investors get nervous in the short-term until a new government is finally formed, but Malaysia's economy is strong, and fiscal consolidation will remain a top priority in the country.