Oil Spurs Ringgit's Best Emerging-Market Gain Aided by 1MDB Sale

  • Malaysia's bond insurance cost drops to three-month low
  • 1MDB preps land sale after offloading power assets to China

A two-week rally in Brent crude spurred the Malaysian ringgit to the biggest five-day gain in emerging markets, adding to improving sentiment for the net oil exporter as a debt-ridden state investment company sells its assets.

Malaysian stocks and bonds rose this week, with the cost to insure sovereign debt from default falling to a three-month low, after 1Malaysia Development Bhd. agreed to dispose of its power assets to China General Nuclear Corp. for $2.3 billion. The currency has mainly moved in tandem with Brent prices this year, as a 21 percent decline in the commodity helped make it Asia’s worst performer.

The ringgit strengthened 0.6 percent from Nov. 20 to 4.2592 a dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. It fell 0.9 percent on Friday. The currency has gained 2.7 percent in two weeks as Brent crude advanced 3.7 percent to around $45 a barrel, less than half what it was at its 2014 peak.

“1MDB’s sale of its energy assets is supporting domestic sentiment,” said Christopher Wong, a Singapore-based senior currency analyst at Malayan Banking Bhd. “Oil prices, which have seen relative stability above $40 in the past week, are also a driver of those gains.”

The investment firm announced plans in February to wind down its operations to appease lawmakers critical of its rising debt, which accumulated to about 42 billion ringgit ($9.9 billion) in less than five years. The company, whose advisory board is headed by Prime Minister Najib Razak, came under scrutiny after it almost defaulted on a loan this year. Najib has also found himself embroiled in a political scandal over a donation he received from the Middle East, which was initially said to be connected to the state entity until an investigation from the Malaysian Anti-Corruption Commission found otherwise.

1MDB’s finances are also set to improve as it finalizes the sale of a property project in Kuala Lumpur known as Bandar Malaysia. The company will clear its debt obligations by year-end, the New Straits Times reported on Thursday, citing the firm’s President Arul Kanda. The FTSE Bursa Malaysia KLCI Index of stocks was little changed Friday and was up 1.3 percent for the week.

Chinese Selloff

The ringgit fell along with other regional currencies on Friday as a selloff in Chinese stocks spread across Asia with declining industrial profits and a deepening probe of the financial industry undermining investor confidence in the world’s second-largest economy. The Shanghai Composite Index slumped as much as 6.1 percent, led by brokerages, after Citic Securities Co. and Guosen Securities Co. said they were under investigation.

“The China stock selloff added to the negative tone in the foreign-exchange market,” said Sue Trinh, head of Asia currency strategy at Royal Bank of Canada in Hong Kong.

Malaysia’s five-year credit-default swaps used to insure the nation’s sovereign bonds fell two basis points this week to 171, after reaching 168 on Thursday, a level last seen on Aug. 27, CMA prices show. The yield on 10-year government notes dropped four basis points from Nov. 20 to 4.23 percent, after last week’s seven basis-point decline, according to Bursa Malaysia data.

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