Broad Uptick after Political Election Uncertainty Resolved

| Source: Bloomberg
MALAYSIA’S ringgit rallied the most since 2010 and stocks rose to a record after Prime Minister Datuk Seri Najib Tun Razak won a clear majority in the election, giving him a mandate to continue his economic reforms.

The currency gained 2.1 per cent to 2.9725 per dollar as of 1:41pm in Kuala Lumpur and reached 2.9625, the strongest level since September 2, 2011, data compiled by Bloomberg showed.

At 7pm the ringgit stood at 2.9779.

That was the biggest advance since June 2010. The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) climbed 3.1 per cent to 1,747.85 and rose as much as 7.8 per cent earlier, the most in more than a decade.

Barisan Nasional, also known as the National Front, won 133 of the 222 parliamentary seats, according to the Election Commission, while the opposition People’s Alliance led by Anwar Ibrahim had 89. Najib has embarked on a US$444 billion development program to build railways, power plants and roads to help the country achieve developed-nation status by 2020.

“The market is focused on the reduction in political-risk premium and I do think that the reaction is bordering on euphoria,” Christy Tan, a currency strategist in Singapore at Bank of America Corp., said in a phone interview. “The central bank could come in and restrain the momentum.”

The ringgit rallied the most among 24 emerging-market currencies tracked by Bloomberg yesterday.

Tan forecasted the ringgit to strengthen 1.1 per cent to 2.94 per dollar by the end of September, while Goldman Sachs Group Inc said in a research note that it might advance to 2.95 in six months and 2.9 in a year.

Credit Suisse Group AG said in a report authored by Santitarn Sathirathai in Singapore that the central bank might have intervened at around 2.9860 to manage the gains. The currency rose as much as 2.3 per cent earlier, the biggest advance since the Asian financial crisis in 1998.

Najib had campaigned on a promise to bring down living costs and announced measures such as cash handouts for low- income families and higher pensions for civil servants to woo voters. The opposition vowed to create jobs, cut utility costs and reduce corruption.

“Najib and his government can now push through the reforms and pump in the fiscal infrastructure,” said David Poh, Singapore-based regional head of portfolio-management solutions at Societe Generale Private Banking. “The whole economic growth is going to be positive.”

Before yesterday’s gains, Malaysia’s FBM KLCI was little changed this year, trailing the benchmarks of Indonesia, Thailand and the Philippines that had rallied at least 13 per cent in 2013.

TheFBM KLCI traded at 14.9 times projected, 12-month earnings on May 3, the lowest level in a month. That compares with 14.5 for the MSCI South East Asia Index (MXSO).

Shares that will benefit from the poll results include government-linked banks such as CIMB Group Holdings Bhd (CIMB), which have been ‘regional laggards’, according to a research report from Nomura Holdings Inc.

All 30 stocks in the KLCI index rose yesterday, led by a 12.9 per cent rally in UEM Land Holdings Bhd. (ULHB) and a 10 per cent gain in CIMB Group.

Trading volumes climbed 567 per cent above the 30-day average, data compiled by Bloomberg show.

Three-month non-deliverable forwards in the ringgit advanced 2.1 per cent to 2.9862, the biggest increase since October 2011 and 0.5 per cent weaker than the spot rate, according to data compiled by Bloomberg.

“It’s a relief rally with Najib’s election victory,” Wong Chee Seng, a currency strategist in Kuala Lumpur at Ambank Group, said in an interview. “The market was a little too negative going into the polls.”

Technical indicators suggested the ringgit’s post-election rally might lose steam, according to a research report yesterday from Malayan Banking Bhd.

The dollar’s 14-day relative strength index against Malaysia’s currency dipped to 23, below the 30 threshold that signals the greenback is poised to rebound.

One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, dropped 135 basis points to 7.37 per cent, the biggest decline in more than a year.

Bank Negara Malaysia has kept its benchmark interest rate at three per cent since May 2011 to spur growth in the US$288 billion economy, Southeast Asia’s third largest. Policy makers next meet to set policy on May 9, with all 11 economists surveyed by Bloomberg predicting no change.

Bonds Rise

Gross domestic product will increase five per cent to six per cent this year, according to forecasts published by the central bank on March 20. The finance ministry sees growth between 4.5 per cent and 5.5 per cent for 2013. The economy grew 5.6 per cent in 2012, the fastest since 2010.

The five-year interest-rate swap rose four basis points, or 0.04 percentage point, to 3.36 per cent, the most in four months. Government bonds climbed, with the yield on the 3.48 per cent note due March 2023 falling three basis points to 3.36 per cent, the lowest since the debt was sold in March this year.

HSBC Holdings Plc said there’s ‘significant scope’ for bond investments to catch-up with regional markets. Year-to-date inflows amount to only US$2.7 billion, compared with US$4.9 billion in Thailand and South Korea’s US$5.5 billion, according to a research report yesterday.

The bank raised its recommendation on Malaysian bonds to moderate overweight from marketweight in late April on the view that there will be sizeable inflows into the bond market post elections, Pin Ru Tan, a rates strategist in Hong Kong, wrote in the note.

Overseas funds purchased more ringgit-denominated sovereign debt in the run-up to the election. Holdings climbed to US$45 billion in March, the highest since at least 2005, from US$42 billion in December, according to central bank data. The cost of insuring the nation’s government debt from default fell to 77 basis points, the lowest level in seven weeks, according to data from Markit. Credit-default swaps stood at 84 on May 3, data compiled by Bloomberg show. That compares with 84 for Thailand and 83 for the Philippines.

“Political uncertainty was the biggest overhang” for the stock market, analysts led by Choong Wai Kee at Nomura Holdings wrote in the report yesterday. “After a strong rally in other Asean markets such as Philippines, Indonesia and Thailand, Malaysia is no longer expensive.”