The perception and consequences of rent-seeking

SINGAPORE (May 21): The Malaysian stock market reacted far better than initial prognoses by most market analysts, on the heels of the shocking — though not wholly unexpected, if the mini rally for certain stocks during the week of May 7 is any indication — defeat of the long-ruling coalition, Barisan Nasional (BN), in the 14th general election. Even the ringgit is holding up fairly well, especially considering the external backdrop of a strengthening US dollar and rising Treasury yields.

To be sure, Bursa Malaysia saw increased volatility when it resumed trading on May 14. There was a huge 79-point swing intraday, but market breadth was broadly positive on the back of brisk trading volume of 6.62 billion shares. The FBM KLCI ended the day 3.9 points higher.

We attribute this show of confidence to the swift, decisive actions taken in these early days, including the setting-up of the five-member Council of Eminent Persons to guide the crucial 100-day transition period. The council is tasked with drawing up and recommending institutional and economic reforms to the new government. One of its first moves has been to set up an institutional reforms committee.

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