Ringgit Slumps Most in Asia After Report Doubts 1MDB Debt PlanLiau Y-Sing and Elffie Chew
Malaysia’s ringgit sank to a 17-year low as concern about the finances of a state investment firm at the heart of a political scandal worsened the outlook for an economy rocked by plunging oil prices and an emerging-market selloff.
The ringgit led declines in Asia, depreciating 0.9 percent to 4.2517 a dollar in Kuala Lumpur, reversing Tuesday’s 1.2 percent gain, according to prices from local banks compiled by Bloomberg. It reached 4.2990, the lowest since July 1998, and has weakened 18 percent in 2015. Indonesia’s rupiah and India’s rupee fell, while Taiwan’s dollar and South Korea’s won gained.
Abu Dhabi’s International Petroleum Investment Co. may pull out of a plan to help restructure 1Malaysia Development Bhd.’s $3.5 billion of debt, Singapore’s Business Times reported Wednesday citing an unidentified person. 1MDB said it remains engaged in talks. China’s move to cut interest rates for the fifth time since November failed to lift the ringgit, which has been battered by a slowing economy and a scandal involving fund transfers to Prime Minister Najib Razak.
“The ringgit’s underperformance could be due to the report that Abu Dhabi’s IPIC may pull out of 1MDB’s debt plan,” said Nizam Idris, Singapore-based head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd. “That could make it difficult for 1MDB to resolve its debt, which will weigh on the country’s risk.”
The weakening ringgit doesn’t reflect Malaysia’s true fundamentals, Najib told reporters in Kuala Lumpur Wednesday. A gauge of volatility in the currency rose to a record and sovereign bonds retreated.
The U.K.-based Sarawak Report and the Wall Street Journal last month reported on documents that showed almost $700 million may have moved through state agencies and companies linked to 1MDB before ending up in accounts bearing Najib’s name. That led to calls for the prime minister’s resignation.
The Malaysian Anti-Corruption Commission’s statement on Aug. 3 that Najib had received 2.6 billion ringgit ($612 million) from donors and not 1MDB has failed to assure investors. Global funds have pulled more than $3 billion from the local stock market this year and overseas investors’ holdings of the nation’s debt fell to a three-year low in July.
The 58 percent drop in Brent crude from a year earlier is hurting Malaysia, which derives 22 percent of its revenue from oil-related sources, and weighing on the ringgit amid an emerging-market selloff spurred by the yuan’s devaluation this month. A 17 percent slump in palm oil prices is also hurting the world’s second biggest producer of the commodity.
“News that Abu Dhabi’s IPIC could pull out of plans to help 1MDB restructure its debt likely weighed on sentiment,” said Khoon Goh, a strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Weak commodity prices, especially crude and palm oil, are adding to the bearish tone.”
One-month implied volatility for the ringgit, a measure of expected exchange-rate swings used to price options, surged 3.11 percentage points to 18.25 percent, after earlier reaching a record 18.6 percent. One-month non-deliverable forward contracts sank to an unprecedented 4.2915 a dollar before trading 1.6 percent lower at 4.2492 as of 5:13 p.m. in Kuala Lumpur, data compiled by Bloomberg show.
Government bonds fell, with the yield on securities due 2025 rising four basis points to 4.45 percent, the highest for 10-year notes since 2008, Bursa Malaysia prices show. The benchmark stock index advanced 1.1 percent, tracking gains in Asian shares.
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