May 7 (Bloomberg) -- Malaysia’s ringgit strengthened to its highest since August 2011 and government bonds rose after Prime Minister Najib Razak’s coalition retained power in the weekend poll, bolstering the outlook for economic reforms.
Najib’s Barisan Nasional alliance, also known as the National Front, won 133 of 222 parliamentary seats in the May 5 election, extending a 55-year rule. The premier has embarked on a $444 billion spending spree to build railways, power plants and roads in an attempt to achieve developed-nation status by 2020 at the same time as vowing to cut the budget deficit. Opposition leader Anwar Ibrahim, whose group secured 89 seats, alleges electoral fraud and has disputed the outcome.
“At least part of the uncertainty is out of the picture,” said Andy Ji, a foreign-exchange strategist in Singapore at Commonwealth Bank of Australia. “The opposition is still contesting the results but it’s not going to make much of a difference. The ringgit will consolidate around the current level.”
The currency advanced 0.1 percent to 2.9773 per dollar as of 4:19 p.m. in Kuala Lumpur and earlier rose as much as 0.8 percent top 2.9570, the strongest level since Aug. 2, 2011, according to data compiled by Bloomberg. It’s headed for the biggest three-day gain since October 2011.
“The move post-election is a little bit too aggressive,” said Wee-Khoon Chong, a rates strategist in Hong Kong at Societe Generale SA. “I think it will probably drift back to the 3 per dollar level in the coming few weeks.”
Following the election result yesterday, the ringgit rallied 1.8 percent, the largest advance since June 2010. The FTSE Bursa Malaysia KLCI Index of shares climbed as much as 7.8 percent before closing up 3.4 percent at a record. It rose 1.2 percent today.
One-month implied volatility in the currency, a measure of expected moves in the exchange rate used to price options, fell 21 basis points to 7.31 percent. The gauge dropped 119 basis points, or 1.19 percentage points, yesterday to 7.52 percent, the biggest decline since January 2012.
The yield on the 3.26 percent sovereign notes due March 2018 fell one basis point to 3.10 percent today, the lowest level for a benchmark five-year bond since September 2011, according to data compiled by Bloomberg.
“Election results are positive for Malaysian assets,” Rohit Arora and Igor Arsenin, strategists at Barclays Plc, wrote in a research note yesterday. “Potential upside for the ringgit remains, but large moves are unlikely given the likelihood of FX intervention.”
Three-month non-deliverable forwards in the ringgit were little changed at 2.9902 per dollar after rising 2 percent yesterday.
Bank Negara Malaysia has kept its benchmark interest rate at 3 percent since May 2011 to spur growth in the $288 billion economy, Southeast Asia’s third largest. Policy makers next meet to set rates on May 9, with all 20 economists surveyed by Bloomberg predicting no change.
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