KUALA LUMPUR -- Hours after the opposition coalition secured victory in Malaysia's general election, the country's new leader Mahathir Mohamad said he would form a government by 5 p.m. local time.
The 92-year-old, himself a former prime minister, stressed he is the candidate for the premiership and pressed the king to proceed with the formation of a government.
During a news conference on Thursday afternoon, Mahathir implied that the king might not have been aware of the details of the constitution in terms of who was to be appointed prime minister. There were "some delays over lack of understanding," he said. Mahathir's previous stint in power lasted from 1981 to 2003.
"We need to study all the things done by the previous government," he said in relation to the policies of the new administration.
He also declared that the 6% goods and services tax, introduced by Najib in 2015, would be scrapped, and voiced support for China's Belt and Road initiative.
Incumbent Prime Minister Najib Razak said he accepted the "verdict of the people" during a news conference in the morning.
Najib, however, also stated that it was ultimately up to the king to choose the next prime minister, "since no single party gained a simple majority," adding that it had been a "tough election."
Mahathir's opposition coalition, Pakatan Harapan, or Alliance of Hope, won 113 of the 222 contested seats, according to the Election Commission. Najib's Barisan Nasional, or National Front, ended up with 79 seats, while the Islamic Party of Malaysia won 18 and the rest were split among other parties.
As Malaysia's historic election night came to a close, the country began to digest the full implications of the first change of government since its 1957 independence.
The government earlier in the day declared Thursday and Friday to be national holidays, as citizens, businesses and markets reacted to Mahathir's upset victory with a mix of excitement and anxiety.
Ali Hamsa, the chief secretary to the government, declared the two additional public holidays in conjunction with the general election. His statement did not delve into the reasons, but Mahathir had said in April that he would grant two extra holidays after the polling day.
The central bank, it seems, was among those that did not see Mahathir's victory coming: It had scheduled a monetary policy meeting for Thursday. That morning, Bank Negara Malaysia announced, "All financial institutions as well as the onshore money, bond and foreign exchange markets will also be closed during the period and reopen on Monday." Later, however, it decided to go head with the policy meeting.
The stock exchange said on Thursday morning that it would reopen on Monday.
But in the meantime, economic concerns are growing and markets are already trembling.
Ratings agency Moody's on Thursday noted that some Alliance of Hope policy pledges would be credit negatives, if the new ruling camp follows through without making adjustments. "These include a proposed abolishment of the GST which, without offsetting measures, would increase Malaysia's reliance on oil-related revenues and, in the near term at least, narrow the government's revenue base," Moody's said.
The election jolted the foreign exchange market and exchange-traded funds. The ringgit fell sharply against the dollar in offshore forex trading: At one point, after the results came in, the Malaysian currency was down by 2% against the dollar, at 4.04 ringgit.
"Political and economic uncertainties loomed in a rather thin market," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corp. in Singapore.
Investors fear the Malaysian economy may slow without Najib's heavy spending. But Okagawa suggested the ringgit depreciation is temporary. "Mahathir's neoliberal reforms may bring even stronger growth to Malaysia," he said.
As for ETFs, the iShares MSCI Malaysia ETF, also known as EWM, fell by over 6% to $32.4. It is the biggest fund holding Malaysian stocks.
The cost of insuring against Malaysia's sovereign default jumped. Five-year credit default swaps rose over 7 basis points to 92.7 bps, the highest level in 11 months.
Despite the somewhat negative initial reaction, the big question is how investors in Malaysia will respond. Onshore trading has a stronger impact on asset prices, since the Malaysian central bank does not allow offshore spot trading of the ringgit.
Nikkei staff writer Masayuki Yuda contributed to this story.