KUALA LUMPUR: The state elections outcome and Pakatan Harapan (PH) retaining Selangor, Penang and Negri Sembilan may help stabilise the stock market and ringgit in the short term as investors perceive that there is now less economic policy uncertainty in the country.
Analysts also believe the state elections outcome has averted negative reactions to Malaysia's stock market and ringgit if Prime Minister Datuk Seri Anwar Ibrahim's unity government loses any of the three key states.
The unity government, however, must continue to do the right thing for the economy by implementing the necessary structural reforms, UCSI University Malaysia assistant professor of finance Dr Liew Chee Yoong told the New Straits Times.
It must also not stop fighting corruption and reducing wastage, as well as improving efficiency in the civil service and quality of education, and providing higher incentives to attract foreign investments and increase investors' confidence in the long run, Liew added.
Pressure Lifted
SPI Asset Management managing director Stephen Innes said the status quo is good and a considerable relief for Anwar.
"The markets could have been thrown into a bit of wobble if he lost any one of the three key states (Selangor, Penang and Negri Sembilan).
"It's not the ultimate bullish outcome but I think the status quo will offer Anwar enough breathing room to undertake some real pro-growth reforms," Innes added.
He said Anwar had a lot of pressure lifted from him after the elections, which were seen as a referendum on his popularity both locally and internationally.
"This outcome should help to stabilise his new government. However, I don't believe that Anwar's PH supporters will be celebrating in the streets of KL, as Perikatan Nasional has made some gains which could cause complications in the future," he added.
A nail-biting contest to stamp their superiority over who would gain control over six states ended in a 3-3 stalemate, with Pakatan Harapan (PH) retaining Penang, Selangor and Negri Sembilan and Perikatan Nasional (PN) keeping Kelantan, Terengganu and Kedah.
PN, however, came out of the fight the bigger winners, completely sweeping Terengganu, expanding its dominance in Kedah and Kelantan, and making inroads in Penang and Selangor.
Neutral For Bursa And Ringgit
Malaysia University of Science and Technology economist Dr Geoffrey Williams believes the election results should be neutral on Bursa Malaysia and the ringgit.
Williams said changes in seats at the state level are not important in this respect.
"Now that the uncertainty of the elections is settled, the markets will move on to normal things including individual company performance on Bursa.
"Long-term reforms, international developments and 2024 Budget will be the focus for the ringgit because we do not expect any changes to the Overnight Policy Rate (OPR).
"So that (OPR) source of speculation should also go away and we might expect the ringgit to firm up and Bursa to continue as normal," Williams said.
Bursa Malaysia's stock indexes managed to pare back some of its losses over the afternoon session but ultimately finished lower on Friday (August 11), influenced by the state elections.
The FTSE Bursa Malaysia KLCI (FBM KLCI) eased 1.71 points to 1,457.16 on Friday from 1,458.93 at Thursday's close.
Williams said although the opposition improved the number of seats, this was mainly a consolidation in those states it already runs.
"For the unity government at federal level, it should have very little impact and since the elections are now out of the way, it can focus on its main agenda of economic reform."
Williams said there are some concerns that the very poor performance of Umno, which lost more than 80 per cent of the seats it contested, might destabilise its president Datuk Seri Dr Ahmad Zahid Hamidi.
"But actually, there are no obvious successors and he is in firm control. So I do not expect that risk to be so important," he added.
GDP Release, External Events Weigh On Bursa, Ringgit
Associate Professor Aimi Zulhazmi Abdul Rashid, an economic analyst with Universiti Kuala Lumpur's Business School, said the stock market and the ringgit may not be affected much by the election results, as both are very much influenced by macroeconomics and external events.
The announcement of Malaysia's gross domestic product for the second quarter of 2023 by Bank Negara Malaysia by the end of this week may have some marginal impact on the ringgit and Bursa performance.
Global events like slower than anticipated China economy and the US Federal Reserve's relentless intention to increase interest rates are very much in the picture, he added.
Bank Muamalat Malaysia Bhd chief economist and social finance head Dr Mohd Afzanizam Abdul Rashid said the ringgit in particular will continue to be driven by external events such as weaknesses in China's economy and the prospects of a shift in the US monetary policy.
"The federal government will continue to spearhead economic development through its Madani economy.
"Further details of the economic roadmad, along with swift implementation, will be closely monitored by the investors and businesses."
Afzanizam said for now, it is in defensive mode for the global economy as the slide in China's recent trade number and the negative Consumer Price Index print will mean its central bank will incline to prescribe further easing in its monetary stance.
"Given that the ringgit and China's renminbi are closely correlated, it may result in weaker ringgit in the near term," he added.