Malaysia Investors Shift to Mahathir’s Camp

Investors sorted Malaysia’s political haves from the have-nots on the first trading day after a shock election result, dumping shares in firms associated with supporters of ousted prime minister Najib Razak and projects backed by his government.

Veteran politician Mahathir Mohamad came out of retirement to lead the opposition Pakatan Harapan (Alliance of Hope) to a stunning victory over a ruling party he had once led, defeating Najib, a former protégé he had accused of corruption.

As Malaysian markets reopened for trading after being shut for two days last week, one of the biggest losers in the equity market was AirAsia Group Bhd, whose chief executive Tony Fernandes endorsed the incumbent Najib during the campaign. Shares of CIMB Group Holdings Bhd, whose group chairman Nazir Razak is Najib’s younger brother, also plunged.

Among Monday’s biggest winners was the Robert Kuok-controlled PPB Group Bhd, which rose over 4% following the appointment of Kuok, one of Asia’s richest tycoons, as an adviser to the new administration.

More broadly, construction companies were the biggest underperformers after Mahathir’s pledge to review large-scale infrastructure projects sponsored by the Najib administration, particularly those that would expand China’s economic interests in Malaysia.

Shares of YTL Corp., the conglomerate which was awarded the contract to build the Kuala Lumpur-Singapore high-speed railway line, fell more than 8%.

“Near-term performance may be constrained by a potential flux in capex plays and government-linked stocks, both prominently represented in institutional portfolios, in our view, as policy risks are repriced,” said Hoy Kit Mak, head of Malaysia equity research at JP Morgan.

Mak said his stance was to stay in consumer and defensive sectors, including healthcare and telecommunications.

The main stock index, one of Asia’s top three performers this year in dollar terms, recovered quickly from an early drop, even as the utilities sector remained a drag. The construction sector fell nearly 13%.