Ringgit Dips to Weakest Level Since 1998 Asia Financial Crisis

(Bloomberg) -- Malaysia’s ringgit touched its lowest level since the Asian financial crisis in 1998, as investors continue to sell down emerging-market assets and after a crackdown on currency speculators last month exacerbated outflows.

The ringgit declined as much as 0.1 percent to 4.4805 per dollar, a level unseen since January 1998, according to prices from local banks compiled by Bloomberg, before trading at 4.4802 at 1:47 p.m. in Kuala Lumpur. The current situation “is a turbulence, not a crisis,” and the Malaysian currency will eventually recover back to its fair value, Second Finance Minister Johari Abdul Ghani told reporters.

The ringgit has lost more than 6 percent since the U.S. election, the biggest decline in emerging Asia, as expectations that incoming American president Donald Trump will stoke inflation with his fiscal policies spurred outflows from the region. Sentiment toward Malaysian assets has also been hurt by the central bank’s move in November to clamp down on trading of non-deliverable forwards even as it provided greater onshore hedging flexibility with revised regulations.

“It is a confluence of the relative decline in cash metric, high foreign holding of bonds sold off, investors’ trepidation about FX controls and the underlying political or headline risks,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore.

Tighter U.S. monetary policy, and concerns over Trump’s policies toward trade and relationship with China have reduced the appeal of riskier assets, with losses seen across Asia. The MSCI Emerging Markets Currency Index slid 0.8 percent last week as the Federal Reserve signaled a steeper path for interest rates going forward. Bank Indonesia Governor Agus Martowardojo said Monday the central bank will stabilize the rupiah in line with the nation’s fundamentals amid tension over China’s seizure of a U.S. naval drone.

While capital flight is unavoidable, foreign investors will return when things stabilize, Johari said in Kuala Lumpur. Foreign funds halted a seven-week selling streak in Malaysian stocks, buying a net 44 million ringgit ($9.8 million) of shares last week, according to a note by MIDF Amanah Investment. Outflows have slowed to 2.5 billion ringgit this year, compared with 19.5 billion ringgit in 2015, MIDF said.

Malaysia’s economy is “very robust” because of the nation’s strong economic policies and fiscal consolidation, World Bank Country Director for Southeast Asia Ulrich Zachau said.

Still, the ringgit may weaken to 4.52 in the second quarter, before stabilizing at 4.47 in 2018, according to the median estimates of analysts surveyed by Bloomberg.

“The dollar-ringgit perhaps sums up the struggles many emerging economies with dollar pegs and currency controls will face in 2017 with higher U.S. yields and a stronger dollar,” Jeffrey Halley, senior market analyst at Oanda Corp. in Singapore, wrote in a note. “Expect this to become an important theme in 2017.”

--With assistance from Elffie Chew Jake Ulick and Garfield Reynolds To contact the reporters on this story: Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net, Netty Ismail in Singapore at nismail3@bloomberg.net. To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Patricia Lui