Ringgit Gain Tops Emerging Markets as Najib, Oil Lift Sentiment

  • PM cleared in corruption probe as budget revisions loom
  • Brent has rallied about 15 percent since last week's 2003 low

Sentiment toward Malaysia’s ringgit is finally turning around.

The currency rose more than any other in emerging markets as Prime Minister Najib Razak was cleared in a corruption probe and oil traded 15 percent off its lowest in more than decade. The ringgit extended an advance beyond its 100-day moving average, a bullish signal for a currency that’s appreciated this month whilst most Asian counterparts weakened. With Najib now able to give his full attention to an economy hit by a slump in commodities, focus will be on Thursday’s budget revisions for a clearer picture on the economic outlook.

“With the political risk out of the way, sentiment has improved,” said Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd. in Singapore. “Oil is also a big factor” and a rally in the benchmark stock index indicates investors think the budget “won’t be too negative.”

The ringgit strengthened for a fourth day in the longest stretch of gains since September. It rose 0.9 percent to 4.2565 a dollar in Kuala Lumpur and reached a seven-week high of 4.2347, according to prices from local banks compiled by Bloomberg. The currency has appreciated 0.9 percent versus the dollar in January, compared with a 2.7 percent loss in the Indian rupee and the South Korean won’s 2.5 percent decline.

Najib Probe

The FTSE Bursa Malaysia KLCI Index of shares climbed 0.3 percent, adding to the 1.6 percent advance in the past two days. While the ringgit fell 19 percent in its biggest annual loss since 1997 last year, analysts are forecasting a less protracted slide in 2016. The currencywill weaken to 4.41 per dollar, according to the median estimate in a Bloomberg survey.

Malaysia’s Attorney-General said on Tuesday that there was no evidence of wrongdoing by Najib over a $681 million “personal donation” from the Saudi royal family. The money was transferred in early 2013 before the general election, Attorney-General Mohamed Apandi Ali told reporters, citing investigations by the anti-graft agency. Najib returned $620 million in August that year that was not utilized, Apandi said.

The slide in Brent to around $31 a barrel prompted the government to rethink its budget, which assumes an oil price of $48. The amendments will include measures to reduce operating expenditure and the privatization of some projects, Secretary General of Treasury Mohd Irwan Serigar Abdullah said on Jan. 13. Najib seeks to trim the fiscal shortfall to 3.1 percent of gross domestic product this year from an estimated 3.2 percent in 2015.

The deficit goal will likely be revised slightly higher, said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. A new growth estimate may also be announced from the current 4 percent to 5 percent, he said.

“The ringgit’s near-term fortunes remain tied to oil price developments, and further strength is dependent on the ability of oil prices to rally,” said Goh. “Domestically, the focus is on the budget revisions.”

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