Ringgit Sinks With Shares as Oil Keeps Dropping Amid Stocks Rout

Source from Bloomberg

Malaysia’s ringgit led losses in Asia and stocks slumped the most in seven years as oil kept dropping amid an equities rout that’s deterring risk-taking.

Brent crude slid 3.6 percent following a 7.3 percent loss last week, putting pressure on the government finances of Malaysia, which derives about 22 percent of its revenue from oil-related sources. The Singapore dollar strengthened beyond 3 to the ringgit for the first time as share gauges from China to Germany sank on concern the world growth outlook is worsening.

“The ringgit is still pretty much stuck in the perfect storm,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. “The fresh plunge in oil prices is once again triggering all the negative dynamics. There’s also very intent focus on eroding foreign-exchange reserves.”

The Malaysian currency tumbled 1.9 percent to 4.2630 a dollar in Kuala Lumpur after earlier sinking to a 17-year low of 4.2640, according to prices from local banks compiled by Bloomberg. That took its drop this month to 10.3 percent, the worst performance among 24 emerging-market exchange rates tracked by Bloomberg after Russia’s ruble. The benchmark stock index retreated 2.7 percent to 1,532.14, the most since 2008.

The ringgit has weakened 18 percent in 2015 in Asia’s worst performance as a slide in crude prices coincides with a political scandal involving Prime Minister Najib Razak. Global funds have dumped more than $3 billion of Malaysian equities in 2015, the biggest outflow since 2008, and also cut debt holdings in July.

Reserves Drop

Government bonds declined, with the yield on the notes due September 2025 up one basis point to 4.40 percent, the highest since they were issued in March, Bursa Malaysia prices show.

A drop in Malaysia’s foreign-exchange reserves is also contributing to the ringgit’s weakness, said Masashi Murata, vice president at Brown Brothers Harriman & Co. in Tokyo. Holdings fell 2.3 percent to a six-year low of $94.5 billion as of Aug. 14 from two weeks earlier, according to central bank data released Friday.

The Financial Markets Association of Malaysia said it’s encouraged by assurances from the prime minister and the central bank governor that there are no plans to impose capital controls or peg the ringgit.

“Dispelling the possibility of capital controls is especially useful to foreign investors in a move that signals Malaysia’s continued commitment to an open capital and current account,” the association said in an Aug. 22 statement.