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Malaysia ETF Plummets After Shock Election

This article was originally published on ETFTrends.com.

Malaysian markets and country-specific ETF plunged Wednesday as it grew more likely that the opposition party could capture a surprise election win and end Prime Minister Najib Razak’s ruling coalition 61-year reign.

The iShares MSCI Malaysia ETF (EWM) plummeted 6% on Wednesday, breaking below its long-term trend line at the 200-day simple moving average.

Malaysian markets soured Wednesday after it grew more likely that Mahathir Mohamad and opposition alliance would end the ruling coalition’s grip on power in Malaysia, which has not occured since the Southeast Asian country gained independence in 1957.

“Markets are positioned for any outcome as sentiment on the ground is different this time,” a fund manager with a local investment bank who didn’t want to be named told the Wall Street Journal.

The fund manager attended talks by both sides of the political spectrum to gauge voter sentiment and argued that even if Najib’s coalition wins nationally, it is poised to lose in a number of states. “That alone is not good for the market,” the fund manager added. Regardless of the election results, he said there will be knee-jerk market reactions. “The race is too tight this time.”

The election commission showed Mahathir’s four-party Pakatan Harapan coalition leading Prime Minister Najib Razak’s Barisan Nasional alliance accumulated nearly half of the seats counted. Unofficial results showed Mahathir’s bloc with a wider lead, Bloomberg reports.

“From our unofficial counting, they are lagging far behind and the likelihood is that they will not be forming the government,” Mahathir told reporters in Kuala Lumpur Wednesday night. “People must know what is their duty and they must do what is right according to the constitution and the laws of this country.”

Mahathir, who previously served as Malaysia’s leader for over two decades, came out of retirement and joined the opposition in a bid to oust Najib, whom faced corruption allegations and rising discontent over a goods-and-services tax.

Many traders previously expected Najib to easily win the elections, but the turn has caused increased political risk to affect the markets. Foreign investors pulled money out of Malaysia ahead of the elections, selling a net 438.4 million ringgit, or $111.1 million, in stocks last week, the second-largest weekly outflow this year. The selloff continued Monday, with investors pulling another 273.6 million ringgit from Malaysian equities.

For more information on the developing economies, visit our emerging markets category.

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