No respite for ringgit as stocks slump adds to oil-related loss

[KUALA LUMPUR] The ringgit fell, adding to last week's biggest slide in five years, on speculation investors will dump more Malaysian stocks and bonds amid deteriorating sentiment linked to a political scandal.

The currency is trading at a 17-year low against the dollar after a probe revealed Prime Minister Najib Razak received a personal donation from the Middle East, contributing to about US$3 billion of outflows from Malaysian equities this year, the worst since 2008.

Brent crude prices continued to decline on Monday, putting further pressure on the oil-exporting nation's finances as the US prepares to raise interest rates.

"Sentiment remains very poor towards Malaysian assets," said Khoon Goh, a strategist at Australia & New Zealand Banking Group Ltd in Singapore. "The drop in oil prices this morning, as well as the ongoing domestic political issues, mean the ringgit will stay on the back foot."

The currency dropped 0.9 per cent to 4.1178 a dollar as of 10.10am in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. The ringgit slid 3.8 per cent last week as a devaluation in the Chinese yuan compounded losses for this year's worst-performing Asian currency. The benchmark stock index declined, poised for a new lowest close since 2012.

Malaysia was already vulnerable to capital outflows on the back of a possible US interest-rate increase even before the political scandal embroiled Najib. Overseas investors held 32 per cent of the nation's sovereign bonds in July, compared with 17 per cent for Thailand, central bank data show. A rise in debt protection costs is reflecting those concerns.

BOND RISK

Five-year credit-default swaps climbed to a four-year high of 172 on Friday, CMA prices show. The similar cost for Indonesia is 207 points and 133 for Thailand. Global funds cut holdings of Malaysian debt by 2.4 per cent last month to RM206.8 billion (S$70.9 billion), the least since August 2012, according to official data.

The FTSE Bursa Malaysia KLCI Index of stocks fell 0.9 per cent, adding to last week's biggest slide since 2008. The price of Brent crude, used as a benchmark in Asia, has more than halved from last year's peak to US$48.61 a barrel. West Texas Intermediate slid 1.2 per cent in New York Monday to US$41.99.

Malaysia's government bonds headed higher, with the 10-year yield falling three basis points to 4.25 per cent, prices from Bursa Malaysia show. It climbed nine basis points last week.

BLOOMBERG