KUALA LUMPUR, May 14 — Malaysian stocks and the ringgit slid less than expected as markets escaped the meltdown scenario analysts earlier warned as Prime Minister Tun Dr Mahathir Mohamad took steps to ease investor concerns following the surprise election outcome.

The currency slipped as much as 0.9 per cent, the most since November 2016, to 3.9870 at 9:44am local time and government bonds fell. The FTSE Bursa Malaysia KLCI Index lost 0.2 per cent from an earlier drop of as much as 2.7 per cent. The formation of a council of five elders, including former Bank Negara Governor Tan Sri Zeti Akhtar Aziz, is helping to calm sentiment and local funds may come in to buy, according to Areca Capital Sdn.

"We have turned mildly positive over the short term,” said Danny Wong, chief executive officer at Areca Capital. "Most of the local funds have turned slightly positive with more clarity from Mahathir after he announced the 10 key ministries plus an elder council. Confidence is returning.”

Mahathir has sought to reassure the markets by appointing a finance minister seen as a safe pair of hands, while saying he would lead a business-friendly administration. While some, including CIMB Group Chairman Datuk Seri Nazir Razak, have expressed optimism following the election, other analysts said stocks and the ringgit may decline in the short term until there’s clarity on policies. Moody’s Investors Service and Fitch Ratings had warned of risks to the budget if a consumption tax is abolished and not offset by other revenue-raising measures.

"The appointment of Lim Guan Eng as the minister of finance, as well as the formation of the Council of Elders comprising eminent Malaysians to provide advice to the new government was well received in Malaysia,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd in Singapore. "While there will be near-term uncertainty over the fiscal impact of the new government’s policies, especially abolishing GST and reintroducing targeted fuel subsidies, higher oil prices will provide a boost to government revenues.”

Affin Hwang Asset Management Bhd. is expecting a decline of as much as 8 per cent in the first few days of trading post-election, while CGS-CIMB Securities lowered its end-2018 target for the benchmark index.

The opposition victory places the nation in uncharted territory, with an untried government. The Pakatan Harapan coalition had campaigned on a promise to scrap a consumption tax within its first 100 days in power, reintroduce gasoline subsidies and review toll road concessions. In a Thursday press conference, Mahathir emphasised his focus on expanding the economy and reducing debt.

Malaysian stocks had risen to a record close in April as global funds invested more than US$600 million (RM2.4 billion) into local equities this year. The ringgit has benefited from a recovery in crude prices and was the Asia’s best performer over the past year before trading was suspended for the election. — Bloomberg