The turmoil, amid growing fears about the spreading virus, had spooked investors driving Kuala Lumpur's benchmark to a 10-year low while the ringgit currency slid 0.7% to an almost six-month low
The fate of Malaysia's ruling coalition hung in doubt on Monday, after surprise weekend talks between Prime Minister Mahathir Mohamad's party and other groups on forming a new government that would exclude his anointed successor Anwar Ibrahim.
The tussle between old rivals Mahathir, 94, and Anwar, 72, has shaped Malaysian politics for decades and tension has persisted, despite their alliance to win 2018 elections based on a promise that Mahathir would one day cede power to Anwar.
"I am impressed with his position...to not bow to groups that want to seize power without an agenda for change," Anwar told reporters outside Mahathir's residence after the two met, but without saying what they had agreed.
Anwar added, "I am satisfied with his position, that it is the principle that we need to uphold. The reform agenda must be continued." He described the meeting as having been "very good".
The turmoil, amid growing fears about a spreading virus, had spooked investors, driving Kuala Lumpur's benchmark to a 10-year low, while the ringgit currency slid 0.7% to an almost six-month low, its sharpest drop in over three years.
The yield on 10-year Malaysia government bonds leapt six basis points, the steepest jump since last October.
The added political risk makes Southeast Asia's third biggest economy, which grew at its slowest pace in a decade in the fourth quarter, less attractive for investors, one analyst said.
"It becomes quite hard for Malaysia to bring foreign investors back," added Jolynn Kek, head of equity at BOS Wealth Management Malaysia, pointing to more political stability and more compelling growth stories among its neighbours.
On Sunday, Anwar had accused Mahathir's party and "traitors" in his own party of plotting to form a new government with the United Malays National Organisation (UMNO), the former ruling party ousted in 2018 amid graft accusations.
Sources said Mahathir's party and a faction in Anwar's party met officials from UMNO and the Islamist party PAS in efforts to form a new coalition and possibly back Mahathir to serve out a full five-year term as prime minister.
"More Than Enough"
One source said the new grouping had more than the 112 members needed for a parliamentary majority, should they stake a claim to form a government.
"In terms of numbers, the new coalition has more than enough," the source added.
Holding fresh elections was an option, said two of the sources.
All the sources sought anonymity because they were not authorised to discuss private discussions with the media.
Mahathir's party, the opposition UMNO, the Islamist PAS and Anwar's party faction did not immediately respond to requests for comment.
Mahathir's party, UMNO and PAS met the king on Sunday, media said, though it was not immediately clear what they discussed, and whether the new proposed coalition would secure backing from the king, who plays a largely ceremonial role in Malaysia.
The king can dissolve parliament on the advice of the prime minister and his assent is required for the appointment of a prime minister or senior officials.
But it is unclear what his role would be if the ruling coalition changed without a change in prime minister.
Anwar and Mahathir joined hands ahead of the 2018 election to drive out the UMNO-dominated Barisan Nasional coalition that had ruled the Southeast Asian country for six decades in a surprise victory.
But tension between the two in their Pakatan Harapan (Alliance of Hope) coalition had been growing, as Mahathir resisted setting a timetable to keep his promise to Anwar.
The coalition's political fortunes have waned, with defeats in five recent by-elections. Without changes and a halt to infighting, the coalition might prove to be a single-term government, Mahathir warned last month.
Anwar was Mahathir's deputy when the latter was prime minister during his first stint from 1981 to 2003. But Mahathir sacked him in 1998 after they disagreed over how to handle the financial crisis.
Soon after Anwar was jailed for sodomy, charges he says were trumped up. He spent close to 10 years in jail on two sentences for sodomy, which is illegal in Muslim-majority Malaysia.