Ringgit gain leads emerging markets, budget review in spotlight

[KUALA LUMPUR] The ringgit rose the most in emerging markets on speculation the decline in oil has largely been priced in by investors, and the focus now is whether growth and fiscal targets will be revised at Thursday's budget review.

The currency gained a fifth day in the longest stretch since September even as Brent crude headed down, as some analysts say sentiment has improved after the commodity bounced above US$30 a barrel from a 2003 low. Malaysian Prime Minister Najib Razak started speaking at noon local time and is reassessing plans after Brent slid below the government's budget assumptions and cut state revenue for Asia's only major oil exporter.

"Oil weighs on the budget, but a lot of this is already priced in," said Trinh Nguyen, a Hong Kong-based senior economist for emerging Asia at Natixis SA. "It is good news from the point of view that they are addressing the issue of the budget." The ringgit strengthened 0.6 per cent to 4.2327 a dollar as of 11:21 a.m. in Kuala Lumpur and reached a seven-week high of 4.2250, according to prices from local banks compiled by Bloomberg. It's gained 4 per cent in five days. Plunging oil and a political scandal involving Najib spurred a 19 per cent slump in the currency last year to make it Asia's worst performer.

"The ringgit has absorbed a lot of shock already," said Nguyen.

The government had forecast economic growth of 4 per cent to 5 per cent this year, assuming oil would be at US$48, well above the current US$32 or so. It was seeking to cut the fiscal shortfall to 3.1 per cent of gross domestic product from an estimated 3.2 per cent in 2015.

The prime minister was cleared in a corruption probe after the Attorney-General said Tuesday there was no evidence of wrongdoing over a US$681 million "personal donation" from the Saudi royal family. The money was transferred in early 2013 before Malaysia's general election, Attorney-General Mohamed Apandi Ali told reporters, citing investigations by the anti- graft agency. Najib returned US$620 million in August of that year which hadn't been utilized, Apandi said.

Ten-year sovereign bonds rose, pushing the yield down three basis points to 3.87 per cent, the lowest since May, according to prices from Bursa Malaysia. The yield on notes due in 2020 climbed two basis points to 3.38 per cent.

BLOOMBERG