The electorate gains by Parti Islam Se-Malaysia, or PAS, could dent investor confidence as the party has previously called for the implementation of hardline Shariah law in the country. The party, which won 49 of the 220 parliamentary seats, is part of former prime minister Muhyiddin Yassin-led Perikatan Nasional alliance which is jostling with veteran opposition leader Anwar Ibrahim’s multi-ethnic Pakatan Harapan to form the government.
PAS being the largest party means “they will be controlling a lot of policy generation and policy output of the new government” if they were to be part of it, Oh Ei Sun, senior fellow at the Singapore Institute of International Affairs, said on Bloomberg Television.
“An Islamist-led government will typically try to make the previously functioning democracy into an illiberal one, which would be very challenging for Malaysia,” he added.
See also: Malaysia cuts rate for first time since 2020 after tariff threat
The benchmark KLCI Index fell as much as 1.5% amid a wider slump in the region while the ringgit was 0.2% lower against the dollar.
Analysts expect more scrutiny on sin companies if the bloc led by Muhyiddin takes power given PAS’ previous crackdowns on beer festivals and gambling.
“The strong electoral performance by the PN coalition was a surprise and we expect regulatory risks to spike higher especially for the gaming, brewery and tobacco sectors,” RHB Bank analyst Alexander Chia wrote in a note.
Malaysia saw its first-ever hung parliament in Saturday’s election after none of the three major coalitions won enough seats to form a majority. Muhyiddin and rival Anwar are locked in a battle to secure enough votes to form a government. They have until 2 pm Tuesday to firm up alliances and put forward a choice for prime minister.
