The ringgit extended last week’s biggest slide in five years, the benchmark share index closed at its lowest since 2012 and bonds declined on speculation investors will dump more Malaysian assets as sentiment deteriorates.
The currency traded at a 17-year low against the dollar after a probe revealed Prime Minister Najib Razak received a personal donation from the Middle East, contributing to about $3 billion of outflows from Malaysian equities this year, the most since 2008. Brent crude prices resumed their decline on Monday, putting further pressure on the oil-exporting nation’s finances as the U.S. prepares to raise interest rates.
“Sentiment remains very poor towards Malaysian assets,” said Khoon Goh, a strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “The drop in oil prices this morning, as well as the ongoing domestic political issues, mean the ringgit will stay on the back foot.”
The currency dropped 0.6 percent to 4.1030 a dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. The ringgit slid 3.8 percent last week as a devaluation in the Chinese yuan compounded losses for this year’s worst-performing Asian currency. The FTSE Bursa Malaysia KLCI Index of stocks fell 1.5 percent on Monday.
Malaysia was already vulnerable to capital outflows on the back of a possible U.S. interest-rate increase even before the political scandal embroiled Najib. Overseas investors held 32 percent of the nation’s sovereign bonds in July, compared with 17 percent for Thailand, central bank data show. A rise in debt protection costs is reflecting those concerns.
Five-year credit-default swaps climbed to a four-year high of 181, CMA prices show. The similar cost for Indonesia is 205 points and 138 for Thailand. Global funds cut holdings of Malaysian debt by 2.4 percent last month to 206.8 billion ringgit ($50.4 billion), the least since August 2012, according to official data.
The FTSE Bursa Malaysia KLCI Index extended last week’s 5.1 percent slide, the biggest since 2008, with 24 of the 30 constituents falling. The ringgit dropped as much as 1.3 percent earlier to 4.1340 a dollar, its weakest since the 1997-98 Asian financial crisis when former Premier Mahathir Mohamad imposed capital controls and a currency peg.
Bank Negara Malaysia Governor Zeti Akhtar Aziz said on Thursday she has no plans to take such measures as the ringgit plunged 23 percent in the past year. The impact from a weaker currency is manageable and the central bank will seek to rebuild foreign-exchange reserves after they dropped below $100 billion for the first time since 2010, she said.
The price of Brent crude, used as a benchmark in Asia, has more than halved from a 2014 peak to $48.77 a barrel. West Texas Intermediate slumped 1.3 percent in New York Monday to $41.95.
Malaysia’s government bonds declined, with the 10-year yield rising four basis points to 4.32 percent, prices from Bursa Malaysia show. It climbed nine basis points last week. The yield on notes due 2017 advanced 12 basis points to 3.67 percent.