KUALA LUMPUR (Reuters) - Malaysian stocks plunged more than 10 percent on Monday and the ringgit currency fell after the ruling coalition suffered its biggest election setback in history.
Under stock exchange rules designed to prevent panic selling, trading was briefly for an hour in the early afternoon, as opposition parties took power in five of the 13 states and vowed to review major government spending projects on the drawing boards.
The benchmark Kuala Lumpur Composite Index extended losses to 10.5 percent as trade resumed at 4 pm (4:00 a.m. EDT).
“The Security Commission and Bursa Malaysia would like to assure the public that market integrity remains intact, in spite of the activation of a market-wide circuit breaker today,” a statement from the stock exchange said, referring to the halt in trading.
The ringgit fell by more than 1 percent its weakest levels in nearly two weeks. It touched 3.2075 per U.S. dollar down from the previous day’s close of around 3.166 and wiping out part of the 2.5 percent gains made in the past month.
“All the while we have enjoyed the political stability premium but now it has been removed,” said Ng Jun Sheng, senior analyst with SBB Securities. “When foreigners look at it, they just exit.”
He pegged support for the main share index at 1,130-1,150 points, just below late afternoon levels.
Stocks linked to the federal government, or its favored tycoons, took the brunt of the damage, with plantation-to-energy group Sime Darby Bhd (SIME.KL), the market’s biggest blue chip, plunging nearly 18 percent at one point.
Sime was caught by a double-punch of political uncertainty and sliding palm-oil prices.
Major infrastructure firms Malaysian Resources Corp (MYRS.KL) tumbled a whopping 39 percent and UEM World Bhd UEMW.KL 24 percent.
Islamists and leftist opposition parties won control of five of Malaysia’s 13 state assemblies and just over a third of federal parliament. The result has led to calls for Prime Minister Abdullah Ahmad Badawi to quit, but he has refused to go.
The market has been spooked by talk that state governments under opposition control might scrap some of the massive infrastructure projects being planned by the federal government in its so-called “development corridors”.
The first indication of that came on Monday when the opposition Democratic Action Party said it will review plans for an $8-billion real estate development project in the northern industrial hub of Penang, after it takes control of the government starting tomorrow.
It is the first major project the opposition wants to review after winning five of the country’s 13 states in an election upset at the weekend, and has close links to the federal ruling coalition.
The project’s major backer is a firm partly owned by businessman Patrick Lim, a friend of the prime minister’s son.
Malaysian investment bank CIMB cut its recommendation on Malaysian shares to neutral from overweight, citing the political uncertainty.
It also cut its year-end target for the KLCI index to 1,380 points from 1,700 points previously. The index was down 9.9 percent at 1,167.63 at 0830 GMT.
Government bond prices ticked down at the open, with the yield on the 10-year benchmark up rising to 3.754 percent from 3.708 percent on Friday. Bond traders said the market was thin because many market participants were away for school holidays.
Editing by Kim Coghill;