Currently in Malaysia: Ringgit and Stocks Tumble With Inconclusive Election

A multi-ethnic alliance led by veteran opposition leader Anwar Ibrahim and a conservative Malay Muslim alliance led by former prime minister Muhyiddin Yassin are now competing to identify the other allies required to establish an absolute majority.

Muhyiddin's Perikatan Nasional alliance gained 73 seats in the lower house and received support from two political parties on Sunday. However, he still lacked the necessary majority in order to create a new government. Muhyiddin might look for support inside the defeated UMNO party to whom he had belonged as he had been a junior partner in the departing cabinet.

Investors reacted to the possibility of ongoing instability and compromise by selling the ringgit MYR, which experienced its biggest decline in seven months against the dollar. The ringgit recently traded at 4.58 to the dollar, down from last week's two-month high of 4.495.

The Benchmark Index for equities in Kuala Lumpur, KLSE, dropped 17.78 points, more than 1.2%, to 1,427.75, its lowest point since November 4. Losers outnumbered winners on the overall market.

This is mainly due to an Islamic party winning the most seats in the country's elections on Saturday, which opened the door for an alliance it is a member of to form the next government, stocks associated with gaming and alcohol fell. It is feared that the potential formation of an Islamic-centred government could lead to the abolishment of these industries within the country as they are deemed “non-halal”. Along with a wider selloff in the country's stocks, shares of casino and resort operator Genting Malaysia Bhd fell as much as 11%, the biggest in more than two years.

The unstable political issue in Malaysia, as the country has been operating without a government, is now taking precedence over economics. The concerns are that even if a coalition can be formed in the near future, it is hard to move forward decisively. Consequently, this would further hurt the Malaysian ringgit and the performance of KLSE.

At present, negotiations are still ongoing without a solid outcome.

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