Malaysia Political Upheaval Ends World’s Longest Equity Bull Run

(Bloomberg) -- The world’s longest stock-market bull run ended its 12-year reign as political turmoil helped drag Malaysian equities down more than 20% from their peak.

The FTSE Bursa Malaysia KLCI Index tumbled 2.7% at the 5 p.m. close in Kuala Lumpur, extending the drop from its April 2018 all-time high to 21%. The benchmark had been in a bull run since 2008, rebounding from the global financial crisis to weather the European sovereign debt crisis, the U.S.-China trade war and Malaysia’s first change of government since independence.

The abrupt resignation of Malaysian 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% fall in 2019, which was the worst performance by a major Asian stock market.

Mahathir’s party exited the ruling coalition, throwing the Southeast Asian nation into renewed chaos after infighting over his successor came to a head. Mahathir’s supporters had been reportedly maneuvering 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 junction, 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.”

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

Close Watch

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, Kwan added.

“Hopefully we’ll have clarity before the end of the month,” he said. “The fundamentals of the Malaysian economy still remain intact. We’re not going to try to do much until we get some clarity.”

--With assistance from Gregor Stuart Hunter.

To contact the reporters on this story: Yudith Ho in Kuala Lumpur at yho35@bloomberg.net;Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net;Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Kurt Schussler, Chan Tien Hin

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