Ringgit slides with Mobius calling it undervalued; stocks fall

[KUALA LUMPUR] The ringgit headed for the biggest two-day loss in a month and Malaysian stocks snapped a run of gains as renewed weakness in Brent crude prices underscored the vulnerability of the oil-exporting nation to gyrations in commodities.

As the currency led losses in Asia on Tuesday, Mark Mobius said the ringgit is still 28 per cent undervalued despite being one of the region's top performers this year following its steepest annual slump since 1997. The executive chairman of Templeton Emerging Markets Group reiterated his call for the potential for assets in less developed nations to rebound as a drop in raw materials spurred a halt in a rally to 2016's high.

"Declining oil prices and dollar strength are weighing on the ringgit," said Christopher Wong, a Singapore-based senior foreign-exchange analyst at Malayan Banking Bhd. "The fall could be a pause from the recent rally and ahead of the Federal Reserve meeting." Malaysia is an attractive prospect and the "turnaround potential" for Asia is great, Mobius said in an interview in Kuala Lumpur. While the MSCI Emerging Markets gauge of shares fell 1 per cent on Tuesday, it's still rebounded 16 per cent from a seven-year low in January.

After the Fed ended its near-zero interest-rate policy in December, Mobius said "there were tremendous opportunities" for a recovery in emerging-market currencies and a small increase in US rates wouldn't have a great impact on countries with high yields. The Fed meets again this week and futures show only a 4 per cent probability of another move up.

The ringgit dropped as Brent slumped below US$39 a barrel after rising through US$40 last week for the first time since December. It declined 0.7 per cent to 4.1335 a dollar as of 3:44 pm in Kuala Lumpur, trimming the year's gain to 3.9 per cent, according to data from local banks compiled by Bloomberg. The currency climbed to 4.0765 on March 7, the strongest since August.

Malaysia's currency is likely to consolidate around 4.10-4.15 a dollar over the next few days, said Wong at Malayan Banking. He predicts the ringgit will trade at 4.10 by the end of March and 4.25 by June 30.

HSBC Holdings Plc revised up its forecasts in a sign analysts are less bearish on the outlook. The bank predicts the ringgit will end the second quarter at 4.15 rather than 4.35 previously, and amended the year-end projection to 4.25 from 4.4. The median estimate in Bloomberg surveys is for 4.30 and 4.35, respectively.

The FTSE Bursa Malaysia KLCI Index fell 0.5 per cent after closing at the highest on Monday since October. The decline wiped out a gain for the year following a 3.9 per cent slump in 2015.

Malaysia's 10-year government bonds erased a decline with the yield little changed at 3.91 per cent, data from Bursa Malaysia show. The cost to insure the nation's debt for five years using credit-default swaps dropped to a seven-month low of 153 overnight, according to CMA prices.

BLOOMBERG