Ringgit Leads Emerging Market Losses as Oil Weighs on Sentiment

  • Malaysia economic growth estimated to have slowed last quarter
  • Stands to lose 300 million ringgit for every $1 drop in oil

Malaysia’s ringgit dropped the most since September and led declines in emerging markets as an overnight slide in Brent crude weighed on the outlook for the oil exporters’ finances just as economic growth slows.

Brent slipped below $32 a barrel on Tuesday after an agreement by Saudi Arabia and Russia to freeze oil production failed to temper concern about a global supply glut. A government report on Thursday will show Malaysia’s economy expanded 4.9 percent in 2015 from 6 percent the year before and slowed in the fourth quarter from the third.

“There was a pretty decent fall in oil prices and that’s pushing down the ringgit,” said Sean Yokota, Singapore-based head of Asia strategy at Skandinaviska Enskilda Banken AB. “In the last month there was a scare on the U.S. economy. Some of that sentiment has bottomed out so the U.S. dollar is strengthening again.”

The ringgit depreciated 1.5 percent to 4.2172 a dollar in Kuala Lumpur, the steepest loss since Sept. 7, according to prices from local banks compiled by Bloomberg. A gauge of the U.S. currency rose for a fourth day Tuesday and was little changed on Wednesday.

Malaysia derives about 22 percent of state revenue from oil-related sources. The government stands to lose 300 million ringgit ($71 million) for every $1 drop in the price of the commodity, Plantation Industries and Commodities Minister Douglas Uggah Embas said in January. Brent has declined 13 percent this year after falling 35 percent in 2015.

Gross domestic product increased 4.1 percent last quarter from a year earlier, slowing from 4.7 percent in the previous three months, according to the median estimate in a Bloomberg survey.

Five-year government bonds fell, pushing the yield up five basis points to 3.44 percent, according to prices compiled by Bursa Malaysia.

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