KL government's political upheaval ends world's longest bull run

Kuala Lumpur

THE world's longest stock-market bull run ended its 12-year reign as political turmoil helped drag Malaysian equities down more than 20 per cent from their peak.

The FTSE Bursa Malaysia KLCI Index tumbled 2.7 per cent at the 5pm close in Kuala Lumpur on Monday, extending the drop from its April 2018 all-time high to 21 per cent. The benchmark had been in a bull run since 2008, rebounding from the global financial crisis to weather the European sovereign debt problem, the US-China trade war and Malaysia's first change of government since independence.

The abrupt resignation of Prime Minister Mahathir Mohamad coupled with concern over the coronavirus outbreak have finally pushed the index into bear territory. The prospect of Malaysia's growth continuing to slow from a decade-low has also pressured the stock gauge this year, after a 6 per cent fall in 2019, which was the worst performance by a major Asian stock market.

Dr Mahathir's party exited the ruling coalition, throwing the South-east Asian nation into renewed chaos after infighting over his successor came to a head. His supporters had been reportedly manoeuvring to form a new government that would exclude Anwar Ibrahim, the man that had been positioned to take his place.

"Given the many possible political configurations at this juncture, investors should be watching events cautiously for now," said Chang Wei Liang, a macro strategist at DBS Group Holdings Ltd in Singapore. "It is too early to jump to any conclusions, and we would have to wait and see. USD/MYR stability will be an important policy objective during this period."

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The ringgit weakened as much as 0.9 per cent to 4.2271 per US dollar, the lowest since September. Bonds fell across the curve. The nation's largest stocks were among the biggest drag on the benchmark index on Monday, with Sime Darby Bhd, Tenaga Nasional Bhd and Genting Bhd each falling at least 4.5 per cent.

Bank Negara Malaysia is closely watching financial markets in light of the unfolding developments, according to a statement from the central bank on Monday. Its market operations will ensure sufficient liquidity and orderly market conditions, it said.

"It feels a little bit like a change of intent versus what the voters had asked for," said Leonard Kwan, a fixed income portfolio manager at T Rowe Price in Hong Kong. "Changing what the voters asked for feels like a very material change, and not something that would be welcome. The market reaction today has shown that."

It's too soon to tell whether the political uncertainties will cause T Rowe to change its allocations to Malaysian securities, he added.

"Hopefully, we'll have clarity before the end of the month," Mr Kwan said. "The fundamentals of the Malaysian economy still remain intact. We're not going to try to do much until we get some clarity." BLOOMBERG