Political uncertainties dimming Malaysia's economic prospects

KUALA LUMPUR, 25 February 2020 – The FBM KLCI fell to its lowest level since December 2011 yesterday and Bursa Malaysia extended its losses today as widesread political uncertainties in Malaysia dampened sentiment, at a time when the country was already suffering from slowing economic growth due to the Covid-19 outbreak, commodity price fluctuations and the US-China trade tensions.

At 9.04 am, the FBM KLCI was down 5.68 points or 0.38% to 1,484.38. Turnover was 144.42 million shares valued at RM83 million.

However, the KLCI recovered in early trade where the recovery is also seen as investors appeared favourable to the appointment of Tun Dr. Mahathir Mohamad as interim Prime Minister. At 9.15 am, the KLCI rose 5.44 points to 1,495.50.

The country’s political drama heightened yesterday, with the resignation of Prime Minister Tun Dr. Mahathir Mohamad, the collapse of the ruling coalition Pakatan Harapan and the exit of 11 key leaders from PKR, including its deputy president Datuk Seri Azmin Ali.

With the future of the ruling government hanging in the balance, Bursa Malaysia witnessed the horrible occurrence of 1,015 counters declining compared to only 138 gainers while a total of 222 stocks was unchanged.

But the FBM KLCI was not the only major index to decline yesterday. In fact, within Asia, most equity markets were smashed while investors flocked towards gold due to Covid-19 fears.

South Korea’s KOSPI was down 3.87%, Thailand’s SET fell by 3.6% and Indonesia’s Jakarta Composite Index declined by 1.28%.

On the outlook for Malaysia, Stephen Innes, chief market strategist at AxiTrade said the country was facing the double whammy effect from the Covid-19 and the collapse of the Pakatan Harapan government.

“Political uncertainty on the back of Tun Dr Mahathir Mohamad’s resignation and as the power struggle intensifies leaves the government in a state of gridlock at a time when policy inputs are most needed to ward off the economic tumult from a protracted US-China trade war and the double whammy effect from the Covid-19.”

Stephen Innes, Chief Market Strategist at AxiTrade

Due to the possible realignment of the country’s political forces and the ongoing Covid-19 outbreak, the ringgit posted its worst intra-day slump in more than three years yesterday, however, today it opened slightly higher against the US dollar on buying support.

At 9 am, the local note were trading at 4.2170/2220 against the greenback from Monday’s close of 4.2240/2270.

An analyst said the ringgit improved after Bank Negara Malaysia (BNM) came out with a statement yesterday saying it is closely monitoring conditions in the financial markets, following the latest developments on the country’s political landscape.