Malaysia’s ringgit posted its biggest weekly loss in three years after the Federal Reserve signaled it may reduce monetary stimulus, sparking concern of a flight of capital from emerging-market assets.
The MSCI Asia Pacific Index (MXAP) of stocks declined for a second day after Fed Chairman Ben S. Bernanke said this week the monetary authority may start reducing quantitative easing this year. Malaysia is the most vulnerable among Asean nations to the risk of a sudden stop in fund inflows because it has been the largest recipient of capital since quantitative easing began, Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch, wrote in a report yesterday.
“Asian currencies are lower because they were the main beneficiaries of inflows from QE,” said Wee-Khoon Chong, a strategist at Societe Generale SA in Hong Kong. “The ringgit could fall to 3.28-3.30 to the dollar in the short term if domestic data continue to deteriorate.”
The ringgit slid 2.8 percent this week to 3.2058 per dollar as of 4:26 p.m. in Kuala Lumpur, the biggest drop since the five days ended May 21, 2010, according to data compiled by Bloomberg. The currency was down 0.1 percent today and touched 3.2162, the weakest level since July 2010.
One-month implied volatility, a measure of exchange-rate swings used to price options, gained 72 basis points, or 0.72 percentage point, to 11 percent today, the highest level since January last year. The gauge surged 187 basis points for the week.
Foreign inflows to Malaysia are the highest among the Association of Southeast Asian Nations at 7 percent of gross domestic product, followed by Thailand at 2.7 percent, the Philippines at 2.3 percent, Indonesia at 1.5 percent and Singapore at 0.3 percent, Bank of America’s Chua said.
Overseas funds hold 32 percent of the nation’s bonds, compared with 33.8 percent for Indonesia and 18.9 percent for Thailand, government and finance ministry data show.
Malaysia earlier this month reported exports contracted 3.3 percent in April from a year earlier, worse than the median prediction of a 0.4 percent increase in a Bloomberg survey of economists. First-quarter gross domestic product slowed to 4.1 percent from 6.5 percent in the previous three months, according to a May 15 government report.
Government bonds declined this week. The yield on the 3.48 percent notes due March 2023 rose 19 basis points to 3.65 percent, according to data compiled by Bloomberg. It was down one basis point today.
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