Ringgit declines with stocks and bonds as China slows further

[KUALA LUMPUR] Malaysia's ringgit slid along with stocks and bonds as a measure of factory output in China added to signs Asia's largest economy is slowing, spurring demand for the relative safety of the dollar.

Emerging-market assets have been under pressure since the Federal Reserve cited China concerns as a reason for refraining from raising interest rates last week. A measure of the Asian nation's manufacturing fell to a six-year low, according to a preliminary Purchasing Managers' Index released Wednesday. That further dimmed the outlook for Malaysia's biggest trading partner, just as new probes into state investment company 1Malaysia Development Bhd. and the prime minister are once again hurting the ringgit.

"Most measures of risk appetite are suggesting elevated risk aversion," said Sue Trinh, head of Asia foreign-exchange strategy at Royal Bank of Canada in Hong Kong. "There's the ongoing political scandal that isn't resolving itself in a particularly timely manner, so all these factors are weighing against the ringgit."

Malaysia's currency retreated 1.2 per cent to 4.3465 a dollar in Kuala Lumpur, taking its three-day loss to 3.3 per cent, according to prices from local banks compiled by Bloomberg. The FTSE Bursa Malaysia KLCI Index of shares fell 1.4 per cent, dropping for a fourth day.

The ringgit may test its all-time low of 4.8850 seen in January 1998 due to slowing global growth, low commodity prices and "idiosyncratic political risks," Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman & Co in New York, wrote in a research note on Wednesday. It has fallen more than any other regional currency this year amid sliding energy prices that are cutting revenue for Asia's only major oil exporter.

The US Justice Department has begun a probe into US properties purchased by shell companies belonging to Prime Minister Najib Razak's stepson and funds that appeared in the premier's personal bank accounts, the New York Times reported this week. Mr Najib's office didn't respond to a phone call and a text message seeking comment on the report on Tuesday.

The Wall Street Journal said at the weekend that the US Federal Bureau of Investigation has started looking into allegations of money laundering by 1MDB. Switzerland, Hong Kong and Singapore have also launched similar inquiries.

The outlook for Malaysia has also been negatively affected by its level of short-term debt, which is relatively high compared with other Asian economies, said Royal Bank of Canada's Trinh. The country's debt is equivalent to 54.2 per cent of gross domestic product, a proportion only exceeded by Sri Lanka and Pakistan among 13 emerging markets tracked by Bloomberg.

Five-year credit-default swaps protecting Malaysian sovereign bonds rose to 207 in New York on Tuesday, the highest since October 2011, before retreating to 206 in Asia, CMA prices show. The five-year government note yield advanced five basis points to 3.84 per cent, climbing for a third day, according to prices from Bursa Malaysia.

Consumer prices rose 3.1 per cent in August from a year earlier, a government report showed on Wednesday. That compares with the median forecast for a 3 per cent gain in a Bloomberg survey and follows the 3.3 per cent increase in the previous month.

BLOOMBERG