May 9, 2018 / 11:24 PM / 9 months ago

Malaysia default swap price rises on opposition parties' election upset

(Reuters) - The cost to insure against a Malaysia default in five years rose in late U.S. trading on Wednesday as an alliance of opposition parties stunned the ruling coalition in a general election, which may result in far-reaching economic consequences.

Malaysia’s Election Commission said Pakatan Harapan had secured a simple majority of 112 seats of the Southeast Asian nation’s parliament’s 222 seats, paving the way for its leader, former Prime Minister Mahathir Mohamad, to become to oldest elected leader in the world.

Barisan Nasional had 79 seats, essentially ending its 61-year rule since Malaysia’s independence from Britain.

An immediate concern for investors is the likelihood Mahathir would move to scrap the country’s unpopular goods and service tax, reducing government revenues, analysts said.

Malaysia 5-year credit default swap price MYGV5YUSAC=R rose in late U.S. trading on Wednesday to 85.29 basis points from 84.55 basis points.

Forwards markets suggested the ringgit MYR= MYRDNFOR= implied it would fall about 2 percent from 3.948 ringgit per U.S. dollar late on Wednesday.

While local financial markets may react negatively to the election upset, some analysts said there might be longer-term positives for Malaysia under Mahathir’s coalition.

“His victory opens up the possibility that Malaysia will finally start to tackle some of the institutional problems that are holding back the country’s long-run prospects,” Capital Economics’ Asian economists Gareth Leather and Alex Holmes wrote in a research note.

Reporting by Richard Leong; Editing by Richard Chang

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