Ringgit Sinks With Shares as Oil Keeps Dropping Amid Stocks Rout

August 24, 2015 — 9:55 AM MYT

By Y-Sing Liau

Malaysia’s ringgit led losses in Asia and stocks headed for their lowest close in three years as oil kept dropping amid an equities rout that’s deterring risk-taking.

Brent crude fell 0.9 percent following a 7.3 percent loss last week, putting pressure on the government finances of Malaysia, which derives about 22 percent of its revenue from oil-related sources. The Singapore dollar strengthened beyond 3 to the ringgit for the first time as share gauges from Japan to Australia sank on concern the world growth outlook is worsening.

“There’s risk-off sentiment,” said Christopher Wong, a Singapore-based senior currency analyst at Malayan Banking Bhd. “For the ringgit, it’s a double whammy as it’s also affected by oil prices.”

The Malaysian currency tumbled 1.9 percent to a 17-year low of 4.2615 a dollar as of 9:51 a.m. in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. That took its drop this month to 10.2 percent, the worst performance among 24 emerging-market exchange rates tracked by Bloomberg after Russia’s ruble. The benchmark stock index retreated 1.8 percent to 1547.19, poised for its lowest close since May 2012.

The ringgit has weakened 18 percent in 2015 in the worst performance in Asia as a slide in crude prices coincides with a political scandal involving Prime Minister Najib Razak. Global funds have dumped more than $3 billion of Malaysian equities in 2015, the biggest outflow since 2008, and also cut debt holdings in July.

Reserves Drop

A drop in Malaysia’s foreign-exchange reserves is also contributing to the ringgit’s weakness, said Masashi Murata, vice president at Brown Brothers Harriman & Co. in Tokyo. Holdings fell 2.3 percent to a six-year low of $94.5 billion as of Aug. 14 from two weeks earlier, according to central bank data released Friday.

The Financial Markets Association of Malaysia said it’s encouraged by assurances from the prime minister and the central bank governor that there are no plans to impose capital controls or peg the ringgit. “Dispelling the possibility of capital controls is especially useful to foreign investors in a move that signals Malaysia’s continued commitment to an open capital and current account,” the association said in an Aug. 22 statement. Government bonds were steady, with the 10-year yield at 4.39 percent, Bursa Malaysia prices show.


Source from : Bloomberg