- Malaysia's general election was called for Mahathir Mohamad's opposition alliance, Pakatan Harapan.
- Short-term volatility is likely given the uncertainty now associated with Malaysian politics entering "uncharted territory," analysts said.
- Some opposition campaign plans, including a pledge to scrap the Goods and Services Tax (GST), were credit negative, Moody's Investor Services said.
- Still, the move was positive in the long term, analysts said.
A historic win at Malaysia's general election by the opposition alliance led by the country's former leader, Mahathir Mohamad, will likely send markets on a wild ride, although analysts said long-term prospects appeared encouraging.
Pakatan Harapan, the opposition coalition, had the support of 135 members of the 222-member parliament, Mahathir said at a press conference on Thursday. That exceeded the 112 seats needed for a simple majority, upsetting the incumbent Barisan Nasional coalition.
Uncertainty will likely be a focus in the short term for markets following the surprise result.
"The Malaysia election outcome is a huge upset, no pollster was expecting this. This upset ranks up there with Brexit and [the] Trump election," said Aninda Mitra, senior sovereign analyst at BNY Mellon Investment Management.
"The bottom line is that while a long-term fix of governance, institutions and public life is now in sight, near-term policy uncertainty will be high," Mitra added.
Among the issues feared by investors is "an unfamiliar change of government as Barisan Nasional has ruled since independence and potential for riots and/or a messy handover of power," Nizam Idris, head of foreign exchange and rates strategy at Macquarie Group, said in a note.
In knee-jerk fashion to the surprise result, the iShares MSCI Malaysia ETF dropped 6.03 percent overnight. The Malaysian ringgit also fell more than 2 percent in offshore forward markets, Reuters said.
Markets in Malaysia, meanwhile, could take a hit when they reopen on Monday. The country's stock exchange is closed on Thursday and Friday in conjunction with a special holiday.
"Financial markets are likely to react badly to the result," Capital Economics economists Gareth Leather and Alex Holmes wrote in a note.
"Forward markets are already pricing in a 2 percent decline in the [Malaysian] ringgit and a 3 percent fall in the stock market," they said.
Large-cap Malaysian stocks with government connections that are likely to fall hard include Maybank, Tenaga Nasional, Telekom and CIMB, Gerald Ambrose, chief executive officer of Aberdeen Standard Investments, told CNBC.
The benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index had risen 1 percent a day before Wednesday's vote, ending a four-day losing streak.
While more clarity was required when it came to assessing Pakatan Harapan's economic policies, one pledge it has made has been to scrap the Goods and Services Tax introduced in 2015.
Mahathir said Thursday in a press conference that the GST would be canceled and that Malaysia would go back to using a sales tax, Reuters reported.
"In the near term, there is likely to be a sharp deterioration in the fiscal position, if as expected, Mahathir pushes ahead with plans to scrap the country's Goods and Services tax," Capital Economics said in a note.
The country, now in "uncharted territory," would likely see greater reliance on oil-related revenues and a narrowing of the government's revenue base if it goes ahead with its GST plans, Anushka Shah, senior analyst at Moody's Investor Service, said in a Thursday note.
Moody's said some of those campaign promises would be credit negative for Malaysia if no other adjustments were made.
Still, analysts were optimistic about the change of party control following more than 60 years of Barisan Nasional in charge.
The election outcome raises "the possibility that Malaysia could finally start to tackle some of the institutional problems that are holding back the country's long-run prospects," Capital Economics said, assessing that the 1MDB scandal was a "key factor" for the opposition's win.
"[T]his has to be a massive positive for Malaysia in the long term," Ambrose said in an email.
— CNBC's Sri Jegarajah contributed reporting to this report.