Ringgit Jumps Most Since 2010, Stocks Reach Record Post Election

Malaysia’s ringgit rallied the most since 2010 and stocks rose to a record after Prime Minister Najib Razak won a clear majority in the election, giving him a mandate to continue his economic reforms.

The currency appreciated 1.8 percent to 2.9793 per dollar in Kuala Lumpur, the biggest advance since June 2010, data compiled by Bloomberg show. It reached 2.9625, the strongest level since Sept. 2, 2011. The FTSE Bursa Malaysia KLCI Index climbed 3.4 percent to an all-time high of 1,752.02 at the close, the best performance since November 2008. It rose as much as 7.8 percent earlier.

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 $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 today. Tan forecasts the ringgit will strengthen 1.3 percent to 2.94 per dollar by the end of September, while Goldman Sachs Group Inc. said in a research note that it may advance to 2.95 in six months and 2.9 in a year.

Bank Negara Malaysia, the central bank, may have intervened in the market today at around 2.9860 to manage the gains, Singapore-based analysts led by Ray Farris and Santitarn Sathirathai at Credit Suisse Group AG, wrote in a research note. The ringgit rose as much as 2.3 percent earlier, the biggest advance since the Asian financial crisis in 1998.

Push Reforms

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.

Anwar hasn’t yet conceded defeat and said he planned to contest some results after highlighting electoral irregularities. Najib was sworn in by the king at 4 p.m. local time, according to a state television broadcast.

“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.”

Enthusiasm Tempered

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

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

All 30 stocks in the KLCI index rose today, led by a 12.9 percent rally in developer UEM Land Holdings Bhd. and a 9.7 percent gain in CIMB Group. Trading volumes climbed 188 percent above the 30-day average, data compiled by Bloomberg show, falling from earlier levels as the gauge pared its advance.

“The enthusiasm has been somewhat tempered,” Chong Yoon-Chou, a Singapore-based investment director at Aberdeen Asset Management Plc, which oversees $322.4 billion, said in a phone interview.

‘Relief Rally’

Malaysian stocks were upgraded to overweight from neutral at CIMB, as a “comfortable win” for Barisan Nasional reduces odds of a repeat of the shock in the 2008 election, analysts Terence Wong and Lee Heng Guie wrote in a report. They raised their year-end target for the KLCI to 1,850 from 1,640.

Genting Malaysia Bhd., the only casino resort operator in the nation, IJM Corp., Multi-Purpose Holdings Bhd., Malaysian Resources Corp. and SapuraKencana Petroleum Bhd. are among UOB-Kay Hian Holdings Ltd.’s top picks after the election, analyst Vincent Khoo wrote in a note.

The ringgit has appreciated 2.7 percent this year, the second-best performance among Asia’s 10 most-traded currencies after the Thai baht’s 3.3 percent advance. Three-month non-deliverable forwards in Malaysia’s currency rose 1.9 percent to 2.9899 per dollar today, the biggest increase since October 2011 and 0.4 percent 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 Indicator

Technical indicators suggest the ringgit’s post-election rally may lose steam, according to a research report today from Malayan Banking Bhd. The dollar’s 14-day relative strength index against Malaysia’s currency dipped to 25, 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 119 basis points to 7.52 percent, the biggest decline in more than 15 months.

Bank Negara 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 policy on May 9, with all 17 economists surveyed by Bloomberg predicting no change.

Swaps Rise

Gross domestic product will increase 5 percent to 6 percent this year, according to forecasts published by the central bank on March 20. The finance ministry sees growth between 4.5 percent and 5.5 percent for 2013. The economy grew 5.6 percent in 2012, the fastest since 2010.

The five-year interest-rate swap rose four basis points, or 0.04 percentage point, to 3.36 percent, the most in four months. Government bonds climbed, with the yield on the 3.48 percent note due March 2023 falling four basis points to 3.35 percent, 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 $2.7 billion, compared with $4.9 billion in Thailand and South Korea’s $5.5 billion, according to a research report today.

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 debt market post elections, Pin Ru Tan, a rates strategist in Hong Kong, wrote in the note.

‘Biggest Overhang’

Overseas funds purchased more ringgit-denominated sovereign debt in the run-up to the election. Holdings climbed to $45 billion in March, the highest since at least 2005, from $42 billion in December, according to central bank data.

The cost of insuring the nation’s government bonds 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 today. “After a strong rally in other Asean markets such as Philippines, Indonesia and Thailand, Malaysia is no longer expensive.”

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