Ringgit Pares Biggest Drop Since 1998 as Investors Digest Brexitby
Malaysia’s stocks also trim losses along with govt bonds
Ringgit is Asia’s worst-performing currency this quarter
The ringgit pared its decline against the dollar as investors around the world digested Britain’s decision to leave the European Union, a move that triggered a global selloff across asset classes.
The ringgit fell 1.8 percent to 4.0900 per dollar as of the 6 p.m. extended close in Kuala Lumpur, prices from local banks compiled by Bloomberg show. It rose to a seven-week high of 3.9893 in the morning on optimism the U.K. would remain in the EU bloc, before plunging by the most since the 1998 Asian financial crisis as that hope proved unfounded.
The pound tumbled and a gauge of the greenback soared as the U.K. “Leave” campaign came out winners with 52 percent of the votes versus 48 percent for those wanting to stay. The uncertainty in the lead up to the referendum contributed to an increase in volatility in Asia’s worst-performing currency this quarter, with political scandals involving Prime Minister Najib Razak and a state-backed fund’s default on a bond payment undermining confidence in the ringgit.
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“While it seems to be panic selling for now, the result from Brexit could lead to sustained weakness in the near term given the uncertainty thereafter,” said Fakrizzaki Ghazali, a Kuala Lumpur-based credit strategist at RHB Research Institute Sdn. “Malaysian investors with exposure in the U.K. -- such as property, utilities -- are set to lose out from expected pound weakness, but the situation could improve once the noise eases.”
While the EU doesn’t feature as one of Malaysia’s top export destinations, oil prices also plunged amid the market turmoil, dimming the outlook for the finances of Asia’s only major net oil exporter. Brent crude slid as much as 6.6 percent to below $50 a barrel.
Malaysia’s 10-year government bond yield rose two basis points to 3.91 percent, while the five-year yield climbed three basis points to 3.47 percent, stock exchange prices show. The FTSE Bursa Malaysia KLCI Index of shares was down 0.4 percent after earlier dropping as much as 1.7 percent.
“Bank Negara Malaysia, together with the Malaysian financial market participants, are monitoring and will remain vigilant to any potential emerging risks and challenges to the domestic financial markets,” the central bank said in a statement Thursday. Liquidity in the domestic market remains “ample” and the country’s financial markets are “well positioned to face any major volatility,” it said.