Weak Reserves Spur Ringgit's Biggest Quarterly Loss Since 1997

  • Malaysia has 11 billion ringgit of bonds maturing Wednesday
  • Cost to insure sovereign debt from default highest since 2009

Malaysia’s ringgit fell, headed for its biggest quarterly loss since 1997, as the relatively low level of import cover afforded by the nation’s foreign-exchange reserves makes the currency more vulnerable to an emerging-markets selloff.

The country’s reserves have declined the most among Southeast Asia’s five biggest economies in 2015 and Moody’s Investors Service said in August that while they are sufficient, their adequacy is the weakest in the region. The holdings recovered for a second straight fortnight in the first two weeks of September, suggesting the central bank scaled back its intervention. The currency slumped to a new 17-year low on Tuesday, while five-year government bonds and the benchmark stock index also fell.

The ringgit’s drop was due to “the usual concerns around emerging-market growth and the weakness in equity markets,” said Khoon Goh, a Singapore-based foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. “Although there is already a lot of negative news priced into the ringgit, the fact that Malaysia has the lowest reserve adequacy in the region means the currency is more vulnerable during times of market volatility.”

The currency depreciated for a sixth day and closed 0.7 percent lower at 4.4565 a dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. It earlier reached 4.4800, the weakest level since January 1998, and has plunged almost 16 percent since June 30.

The ringgit has lost more than any other Asian currency this quarter as a slump in Brent crude weighs on earnings for the region’s only major net oil exporter, just as a looming U.S. interest-rate increase spurs outflows from emerging markets. China’s deepening economic slowdown, a political scandal involving Prime Minister Najib Razak and rising debt at state investment company 1Malaysia Development Bhd. have compounded the losses.

Malaysia’s foreign-exchange reserves rose 0.6 percent to $95.3 billion in the two weeks to Sept. 15 but are still 18 percent lower than at the end of last year. They were enough to finance 7.3 months of retained imports, compared with 8.4 as of Dec. 31, according to the central bank. The reserves declined to a six-year low of $94.5 billion in early August.

The cost to insure the nation’s sovereign bonds from default for five years climbed to 243, the highest since 2009, CMA prices show. The credit-default swaps don’t reflect underlying economic strength, Mohd Irwan Serigar Abdullah, secretary general of the Treasury, said in an e-mailed statement on Saturday. The reaffirmation of Malaysia’s credit rating by the three major assessors backs the “government’s commitment to implement sound macroeconomic policies and fiscal reform initiatives,” he said.

The government sold 2 billion ringgit ($447 million) of 15-year bonds on Tuesday before 11 billion ringgit of debt matures on Wednesday. The securities yielded 4.791 percent at the auction, which got orders for 2.17 times the amount on offer, the highest since June.

In the secondary market, the five-year yield rose seven basis points to a one-month high of 4.01 percent, according to prices from Bursa Malaysia. The 10-year yield earlier climbed to 4.5 percent, the highest for a benchmark of that maturity since 2008, before retreating to 4.35 percent at the close.

Malaysia’s FTSE Bursa Malaysia KLCI Index of shares fell 0.3 percent, taking its drop this quarter to 6.1 percent. Overseas funds have pulled a net 17.7 billion ringgit from the nation’s stocks this year, surpassing the 6.9 billion ringgit for the whole of 2014, according to a report Monday from MIDF Amanah Investment Bank Bhd.

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