(Bloomberg) -- Nomura Holdings Inc. analyst Chetan Seth, once a bull on Malaysia stocks, is now among strategists grappling with a shock election upset that's upending the investment case for the nation's equities.
Just less than two months ago, Japan's biggest brokerage had recommended investors to raise exposure in Asean stocks, with a preference in Malaysia and Singapore. Now, Nomura plans to wait and see “how the drama unfolds” over the next few days and will review its position as volatility returns following the surprise election outcome.
“We have held an overweight on Malaysia within the Asean context,” Seth said in a report published Thursday. “We no longer can justify this stance which was – amongst other reasons – premised on the view of it being a defensive market in the region.”
Most strategists expect Malaysia's markets to suffer a short-term blow after the former prime minister unexpectedly led the opposition to power for the first time in six decades. Nomura's Next Funds FTSE Bursa Malaysia KLCI ETF slipped as much as 5.4 percent in Tokyo, the most since December. The country's 2045 dollar bond reached a 2016 low, while credit risks advanced.
His newfound uncertainty after Mahathir Mohamad's shock victory in Wednesday's election has company. UOB Kay Hian Holdings Ltd.'s head of research Vincent Khoo published a note Thursday which put the firm's end-2018 FTSE Bursa Malaysia KLCI Index target of 1,830 under review.
--With assistance from Livia Yap
To contact the reporter on this story: Divya Balji in Singapore at dbalji1@bloomberg.net.
To contact the editors responsible for this story: Chris Nagi at chrisnagi@bloomberg.net, Cormac Mullen, Tomoko Yamazaki
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