The stark shift means that Prime Minister Najib Razak, who has weathered political attacks and protests 

going back to 2015 over allegations involving state-owned 1Malaysia Development Bhd, may call an early

 election to cement his hold on power.

The ringgit is easily the strongest major Asian currency this quarter, climbing twice as much as the next 

best, the Chinese yuan. Global funds have bought the most Malaysian stocks year-to-date since the same 

period in 2013, and net inflows to the bond market surged in April and May.

Malaysia has been rocked by far-reaching investigations into investment fund 1MDB, yet double-digit 

acceleration in the country’s exports has lifted the economy, which grew 5.6% on-year in the first quarter, 

the most since early 2015.

“With improving macro-economic conditions in Malaysia, we became more positive in mid-2017 for the 

general Malaysia outlook, although there are still political and corruption concerns,” said Hakan Aksoy, a 

fund manager at Pioneer Investment Management Ltd, which oversees US$244 billion globally.

“As long as we see improvement on the macro data with the support of global conditions and stable energy 

prices, we will keep our cautiously positive stance for Malaysia,” London-based Aksoy said.

Overseas investors have purchased US$2.48 billion (RM10 billion) of Malaysian equities this year, the 

biggest stock inflow in Southeast Asia. The FTSE Bursa Malaysia index hit its highest in two years on June 16 

as technology, banks and construction shares soared.

Samsung Asset Management is buying Malaysian banking, property and construction stocks on bets the 

government will pump prime ahead of the election, according to Hong Kong-based fund manager 

Alan Richardson. Meanwhile, it’s paring technology and commodity-related holdings.

“Domestic cyclicals will outperform while global cyclicals will underperform,” Richardson said. This is due 

to “a combination of global monetary stimulus and domestic early election stimulus”.

The stock market’s gains came as the ringgit rebounded from a 19-year low. After missing out on an earlier 

rally in regional currencies, it strengthened as growth quickened and concerns eased over an earlier move 

by the central bank to deter currency speculators. The ringgit was 4.2943 per dollar as of 10.51am in 

Kuala Lumpur, up 0.1% from Wednesday.

Bond investors have also returned. Malaysian debt securities drew more than RM16 billion (US$3.7 billion) 

in April and May after recording the longest stretch of outflows in two years. The yield on 10-year notes 

has fallen 57 basis points to 3.89% since reaching an eight-year high in November.

Still, not everyone is convinced. Nomura Holdings Inc is underweight on Malaysian stocks, citing expensive 

valuations and doubts that the growth momentum can be sustained.

“I find it difficult to justify buying Malaysia’s genuine story while ignoring the risks on valuations and also the 

existing risk that the Malaysian market comes with,” said Mixo Das, Nomura’s Southeast Asian equity strategist 

in Singapore.

“The market probably goes up a bit more till the election, but what happens after it?”

A general election isn’t due until mid-2018, but there’s growing speculation that Najib will call for polls this year with 

growth holding up and the opposition parties racked by infighting. The prime minister said earlier this month that 

preparations for the election were going well.

The economic outlook has helped to counter headlines involving 1MDB, which is at the centre of money-laundering 

allegations and probes in several countries. The US Justice Department is seeking to recover US$1.8 billion in assets it 

says were bought with funds misappropriated from 1MDB.

Complaints filed in a US court alleged that from 2009 through 2015 more than US$4.5 billion belonging to 1MDB was diverted by officials of the fund and their associates.

Najib, who until last year was the chairman of 1MDB’s advisory board, has denied wrongdoing and was cleared by Malaysia’s attorney-general.

For Schroder Investment Management Ltd, economic factors trump politics when investing in Malaysian bonds. It also favours the ringgit due to the nation’s positive outlook.

“Key considerations are improving fiscal dynamics, dynamics around central bank policy, attractive economic policies, sensitivity to developed market and China developments,” said Manu George, a Singapore-based fixed-income director at the firm.

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