Oil spurs ringgit's best emerging-market gain aided by 1MDB sale

[KUALA LUMPUR] A two-week rally in Brent crude spurred the Malaysian ringgit's biggest gain in emerging markets, adding to improving sentiment for the net oil exporter as a debt-ridden state investment company sells its assets.

Malaysian stocks and bonds rose this week, while the cost to insure sovereign debt from default fell to a three-month low, after 1Malaysia Development Bhd (1MDB) agreed to dispose of its power assets to China General Nuclear Corp for US$2.3 billion. The ringgit has mainly moved in tandem with Brent prices this year, as a 21 per cent decline in the commodity helped make the currency Asia's worst performer.

The ringgit appreciated 1.2 per cent from Nov 20 to 4.2332 a dollar as of 10:45 am in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. It has gained 3.3 per cent in two weeks as Brent crude advanced 4.2 per cent to around US$45 a barrel, less than half what it was at its 2014 peak.

"1MDB's sale of its energy assets is supporting domestic sentiment," said Christopher Wong, a Singapore-based senior currency analyst at Malayan Banking Bhd. "Oil prices, which have seen relative stability above US$40 in the past week, are also a driver of those gains." The investment firm announced plans in February to wind down its operations to appease lawmakers critical of its rising debt, which accumulated to about RM42 billion (S$14.1 billion) in less than five years.

The company, whose advisory board is headed by Prime Minister Najib Razak, came under scrutiny after it almost defaulted on a loan this year. Mr Najib has also found himself embroiled in a political scandal over a donation he received from the Middle East, which was initially said to be connected to the state entity until an investigation from the Malaysian Anti-Corruption Commission found otherwise.

1MDB's finances are also set to improve as it finalises the sale of a property project in Kuala Lumpur known as Bandar Malaysia. The company will clear its debt obligations by year-end, the New Straits Times reported on Thursday, citing the firm's President Arul Kanda. The FTSE Bursa Malaysia KLCI Index of stocks rose 1.2 per cent for the week.

Five-year credit-default swaps used to insure the nation's sovereign bonds fell six basis points in the first four days of this week to 168, the least since Aug 27, CMA prices show. The 10-year government note yield dropped six basis points from Nov. 20 to 4.19 per cent, after last week's seven basis-point decline, according to Bursa Malaysia data.

BLOOMBERG