Malaysian equities have been on a wild ride, with the Malaysia ETF surging on Monday after the opposition party surprised observers by winning the office for the first time in six decades.
The iShares MSCI Malaysia ETF (NYSEArca: EWM) jumped 5.6% Monday, paring the previous week’s losses on the knee-jerk political risk selling in response to the election surprise.
The market was shut for three days last week as Mahathir Mohamad led an alliance to unexpectedly beat the ruling Barisan Nasional coalition, Bloomberg reports.
However, the markets were assuaged by prime minister of Malaysia, Mahathir’s first remarks that revealed his stance for a business-friendly administration and search for ways to boost the nation’s equity market. For instance, Mahathir’s coalition pledged to abolish the country’s current goods and services tax, along with fuel subsidies and minimum wage realignment.
Mahathir Could Benefit the Consumer Sector
Gan Eng Peng, director of equities strategy and advisory at Affin Hwang Asset Management, argued that Mahathir’s vow to nullify the nation’s current goods and services tax, fuel subsidies and minimum wage realignment could benefit the consumer sector.
The rebound in Malaysia was led by government-backed local funds and investment bankers, MarketWatch Reports. State-run funds are key players in Malaysia’s markets and frequently support specific government-backed stocks when there is major selling pressure.
“We believe any market selldown may be brief and offer accumulation opportunities,” Bernard Ching, an analyst with Kuala Lumpur-based AllianceDBS Research, told MarketWatch.
Market watchers originally expected the equity market to broadly decline, with government-linked companies, benchmark index stocks and infrastructure companies taking the brunt of any selling after Mahathir’s government said it would review the projects under the previous administration – the new prime minister previously campaigned on a premise to review all infrastructure projects including the East Coast Rail Link project.
For more information on the developing economies, visit our emerging markets category.