What clue do you have on Malaysian economy after the election.

The government, a coalition of Malay and Chinese parties, won only 139 of 222 seats, its worst result in the 51 years since Malaysian independence. The opposition coalition, which won 82 seats, contained both moderate Islamist and secular parties. The National Front ruling coalition’s election result was the worst in five decades, with the opposition increasing its control from one to five states out of a total of 13. However, the opposition is itself a coalition between the Justice party, led by former National Front minister Anwar Ibrahim, which appealed to the secular and ethnically non-Malay populations in the big cities, and the Islamist Pan-Malaysian Islamic party (PAS).

Political worries added to the gloom with trading in Kuala Lumpur suspended for an hour as shares plunged 10% after Malaysia’s ruling coalition suffered its worst-ever result in weekend elections.

Economically, Malaysia’s performance has been sound but unspectacular, given the high world prices for its energy, lumber and palm oil exports. Growth of 5.7% in the boom year of 2007 pales beside the records of China, India and Russia and was lower than Indonesia’s. Should commodity prices fall, weakening Malaysia’s currently formidable current account position, its rapid population growth could impose an intolerable economic and possibly political burden.

While Malaysia runs its current large payments surplus, 15% of its 2007 gross domestic product, it can spend money financing the schools, housing, health care and infrastructure that its 1.8% population growth rate demands (the country has a population of more than 25 million).

If prices for Malaysia’s export commodities decline and resources become scarce, educating such large numbers of young people and finding them jobs and housing will become a real challenge.

Worthy to note also that, opportunistic investors are pulling back from Asian property because they see more scope for picking up distressed assets in the US and Europe, and loans are harder to get in Japan, one of their favourite markets.

“Six months ago it was quite straight forward, we didn’t have to answer questions about why to invest in Asia,” Guy Cawthra, Asia fund strategist at Morley Fund Managers, told a recent conference here. “Now investors say ‘we might not want to invest in Asia, we want to invest in Europe, the UK and the US.’”

The Federal Reserve announced a plan to inject up to $200 billion into the financial system but the move did little to calm investors’ nerves. Read more here.

“It seems that nothing is working right in the US. The economy is going from bad to worse,” said Francis Lun at Fulbright Securities in Hong Kong.

There is growing speculation that the Fed will slash its federal funds rate by 75 basis points at its 18 March meeting to 2.25%. Some analysts are even expecting an emergency cut before the scheduled meeting.

“The US economy is in a terrible state and there is a chance the Fed will cut rates before the meeting next week,” said Mark Wan, chief analyst at Hang Seng Investment Services Ltd.