Ringgit set to drop most since 1998 as UK result favours Brexit

[KUALA LUMPUR] Malaysia's ringgit headed for its worst slump since the Asian Financial Crisis as results from UK's referendum showed the nation leaning toward leaving the the European Union, spurring a flight to haven assets.

The ringgit fell 2.5 per cent to 4.1207 per dollar as of 12:36 pm in Kuala Lumpur, set for the biggest loss since June 1998, prices from local banks compiled by Bloomberg show. It earlier rose to a seven-week high of 3.9893.

The central bank extended onshore trading by an hour to 6 pm on Friday to "facilitate market transactions."

The pound tumbled more than 10 per cent and a gauge of the dollar soared as results showed almost 52 per cent of voters favored leaving the trading bloc while 48 per cent wanted to stay.

The uncertainty in the lead up to UK ballot has contributed to volatility in Asia's worst performing currency this quarter, with political scandals involving Prime Minister Najib Razak and a state-backed fund's default on a bond payment undermining confidence in the ringgit.

"An unexpected turn of events with Brexit becoming a reality is driving market into risk-off mode," said Winson Phoon, a fixed-income analyst at Maybank Investment Bank Bhd in Kuala Lumpur.

"The weakness can last for more than a knee-jerk moment and I expect the bond market to eventually succumb, with the 10-year government bond yield potentially grabbing the 4 per cent handle."

The 10-year government bond yield rose four basis points to 3.93 per cent, while the five-year yield surged eight basis points to 3.52 per cent, stock exchange prices show. The FTSE Bursa Malaysia KLCI Index dropped 1.4 per cent.

While the European Union doesn't feature as one of Malaysia's top export destinations, oil prices fell as the early results of the UK vote came in, dimming the outlook for the finances of Asia's only major net oil exporter. Brent crude slid more than 5 per cent to extend its drop below US$50 a barrel.

The ringgit and South Korea's won have the highest sensitivity to moves in the MSCI Asia Pacific ex-Japan Index of shares, a proxy for risk sentiment in the region, and making the currencies the most exposed to the outcome of the UK poll, according to an analysis by Bloomberg strategist Masaki Kondo. The stocks gauge fell 4.6 per cent Friday.

"Bank Negara Malaysia, together with the Malaysian financial market participants, are monitoring and will remain vigilant to any potential emerging risks and challenges to the domestic financial markets," the central bank said in a statement Thursday.

Liquidity in the domestic market remains "ample" and the country's financial markets are "well positioned to face any major volatility," it said.

BLOOMBERG