A clear victory for Malaysia's government signals a green light for policies aimed at driving growth with domestic investment but no early change to its fixed exchange rate regime, economists said on Monday.
A thumping defeat for the Islamist opposition also vindicated the moderate Islam promoted by Prime Minister Abdullah Ahmad Badawi, cutting Malaysian investment risk and offering a peaceful model for restive Muslims elsewhere in Southeast Asia.
"It should significantly enhance Malaysia's political risk profile. Investors are going to view this very favourably," said Simon Flint, Bank of America's senior Asia strategist.
Abdullah's multi-ethnic coalition stretched its two-thirds control of the national parliament on Sunday, taking about 90 percent of seats, and won at least 12 of Malaysia's 13 states in an unexpectedly strong showing.
The outcome differed starkly with Taiwan, where presidential polls ended in political upheaval and a call for a recount after an apparent assassination attempt on the incumbent on Friday.
The contrast was clear in their respective stock markets, with Kuala Lumpur's core index in positive territory by the 0430 GMT break despite regional weakness driven by a 6.7 percent drop in Taipei's main exchange.
As Taiwan's judiciary considered the opposition call for a recount, in which President Chen Shui-bian won by a razor-thin margin, Malaysia basked in investor praise.
But BoA's Flint said Abdullah's new government would not rush to shift a ringgit currency set at 3.80 to the dollar since 1998.
PEG NO PRIORITY: "Ringgit peg change is not a priority in Malaysia, Badawi's got other fish to fry," Flint said, pointing to his anti-graft drive and focus on boosting small- and medium-sized firms with a mix of incentives and tax breaks.
"The chances are maybe 30 percent of a ringgit change this year where before the election I would have said 20 percent."
Malaysian growth into the late 1990s drew large slabs of foreign direct investment for its electronics-for-export model, which has been hit by stiff competition from China.
But foreign investors were warming to Malaysia as its exports picked up from the global slump and interest flared in Abdullah's high-profile crackdown on corruption, a clear break from predecessor Mahathir Mohamad.
Recent stock market gains and a surge in portfolio inflows testified to a sea change in views towards a country laid low by the 1997 Asian financial crisis and left off many investor radars while the outspoken Mahathir remained in charge.
Though the septuagenarian leader's unconventional fix of capital controls and the ringgit's pegging to the dollar proved a success, confounding sceptics, foreign investors found it hard to swallow Mahathir's defiance.
Abdullah's conciliatory tone since taking power on October 31 won him support, most clearly in the easy two-thirds majority secured in Sunday's elections.
"Expect more capital inflows and the continuation of the pick-up in the equity market while spreads on all the US dollar debt could tighten due to reduced political risk," Barclays Capital Research economist Dominique Dwor-Frecaut said in a report.
Tighter spreads on debt would cut the affected firms' finance costs, feeding through into bottom-line earnings.
She said the monetary policy easing implied by holding the ringgit pegged to a weakening dollar would also boost economic growth at a time of fiscal belt tightening and slack inflation.
Malaysia's economy grew at its fastest pace in three years in the fourth quarter of 2003, when it expanded 6.4 percent from the same time a year previously.
Deputy Prime Minister Najib Razak forecast last month the economy would grow six to seven percent this year.
As for inflation, Malaysia's consumer price index rose just 0.9 percent in February over the same month in 2003.
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