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Ringgit Halts Two-Day Gains as Stocks Fall After Plane Shot Down

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July 18 (Bloomberg) -- The ringgit snapped a two-day advance and the benchmark stock index closed at its lowest level in a month after a Malaysian Airlines jet was shot down over eastern Ukraine, heightening geopolitical risk.

Ukraine’s government claimed pro-Russia rebels downed the Boeing 777 en route to Kuala Lumpur from Amsterdam, while separatists denied the accusation, blaming the Ukrainian army. The disaster adds to global tensions as Israel sent troops into Gaza in an offensive against Palestinian militants. A gauge of exchange-rate swings in the ringgit saw the biggest increase in six months, while 10-year bonds rose the most since January.

“The plane crash didn’t help sentiment,” said Saktiandi Supaat, the Singapore-based head of foreign-exchange research at Malayan Banking Bhd. “People are avoiding emerging-market assets following the escalation of geopolitical risk in the Middle East.”

The ringgit dropped 0.2 percent to 3.1832 per dollar in Kuala Lumpur, data compiled by Bloomberg show. It fell as much as 0.6 percent earlier to 3.1955 in the biggest intraday decline since April 11 and was little changed this week.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, surged 32 basis points, or 0.32 percentage point, to 5.45 percent. That’s the largest gain since Jan. 27.

‘Fear Factor’

Malaysian Prime Minister Najib Razak told reporters in Kuala Lumpur today that “no stone will be left unturned” in finding out what happened to the Malaysia Airlines jet. All 298 people on board died in the attack.

The FTSE Bursa Malaysia KLCI Index of shares closed down 0.5 percent at 1,872.97, the lowest since June 16. Malaysian Airline System Bhd. slumped 11 percent, the most since May 19.

The latest incident is the second major disaster for the national carrier this year. Flight 370 vanished with 239 people on board in March en route to Beijing from Kuala Lumpur, sparking what has turned out to be the world’s longest search for a missing jetliner in modern aviation history.

Flight 17 carried 283 passengers and 15 crew members, with 154 Dutch travelers making up the biggest national group, according to a tally by Malaysian Air. There were 43 Malaysians on board, including crew, the airline said, with passengers from the U.K., Germany, Belgium, Indonesia and Canada.

The yield on 10-year government bonds dropped five basis points to 3.89 percent, the lowest level since the debt was sold in January, according to data compiled by Bloomberg. The rate declined eight basis points for the week.

The MSCI Emerging Markets Index of shares fell 0.4 percent, matching yesterday’s drop.

“The crash heightened geopolitical risk and triggered the fear factor,” said Lam Chee Mun, a Kuala Lumpur-based fund manager at TA Investment Management Bhd., which oversees about 680 million ringgit ($213 million). “That’s driving the sell-down in emerging stock markets and currencies.”

To contact the reporter on this story: Elffie Chew in Kuala Lumpur at echew16@bloomberg.net

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Simon Harvey

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