Malaysian shares bucked the regional trend to close higher on Monday, boosted by a stronger-than-expected election victory by Prime Minister Abdullah Ahmad Badawi's ruling coalition.
In the global market, Malaysian dollar bond spreads tightened after HSBC upgraded Malaysian paper to neutral from underweight due to the polls result.
Domestic bond prices, up for most of the day, snapped a six-day rally to end mostly lower on profit-taking.
Analysts said Abdullah's win gave him a clear mandate to push through plans for boosting robust economic growth and the clout he needs for an anti-corruption drive welcomed by investors.
"This is positive for Malaysian assets; 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 said in a report.
The 100-stock blue chip Composite Index, which leapt 1.4 percent at the opening bell, trimmed gains to end up 0.5 percent at 908.96 points.
Abdullah's multi-racial Barisan Nasional coalition extended its two-thirds control of parliament, allowing it to pass laws uncontested. It took about 90 percent of seats in the Sunday poll, and won 12 of Malaysia's 13 states.
That included Terengganu, one of two states held by Parti Islam se-Malaysia (PAS) but left hanging the fate of the other, Kelantan, where a recount of eight seats continued.
Profit-taking took its toll, but dealers said the market uptrend was intact and the rally would not fizzle soon, even if PAS retained Kelantan. Analysts have predicted the index could top 1,000 points by the end of the year.
Malaysian shares have shot up 14 percent so far this year, boosted by an accelerating economy, smooth leadership succession and optimism Abdullah would heed investor calls for greater market reform and transparency.
Among Asia's worst performers in 2003, Malaysian shares have vaulted to a top-five spot in a table of 27 Asian indices, behind the China's Shenzen and Shanghai indices. Seven of the Malaysian market's ten biggest capitalised stocks rose on Monday, including power utility Tenaga, phone group Telekom and Maybank.
In the domestic bond market, the five-year Malaysian Government Securities MGS 1/04 closed up two basis points at 3.99 percent, having hit an intra-day low of 3.91 percent.
Foreign demand for medium-term bonds increased in the past week as chances for an early US interest rate hike faded, and the prospect of a Malaysian currency appreciation loomed.
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