Ringgit rallies with stocks as oil boosts sentiment

comments     Lilian Karunungan & Elffie Chew, Bloomberg     Published     Updated

Malaysia’s ringgit gained the most in five months and stocks rose after an overnight surge in Brent crude eased concern that finances will deteriorate for Asia’s only major oil exporter.

The ringgit climbed 1.4 percent to a two-week high of 4.2485 a US dollar as at 2.02pm in Kuala Lumpur, prices from local banks compiled by Bloomberg showed. That’s the biggest advance since April.

The FTSE Bursa Malaysia KLCI Index of shares was up 2.1 percent. Brent crude rose 6.7 percent yesterday, the steepest increase in more than two weeks.

Asian markets were also driven higher as odds for a US interest rate hike later on today fade. Malaysia’s central bank governor Zeti Akhtar Aziz said the country faces a “very challenging” period that it has been able to manage so far and the ringgit’s decline has been affected by many factors including domestic ones, according to a report in the local New Straits Times newspaper.

The nation isn’t headed for a crisis, she said. A demonstration by pro-government supporters yesterday passed relatively peacefully.

“The US dollar is on the back foot because analysts are coming around to the notion that the Federal Reserve may not hike tonight,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. “That has provided relief for emerging market currencies, plus the fact that oil prices have rallied.”

Market euphoria

The ringgit and Indonesia’s rupiah, the two worst-performing currencies in Asia this year, are now looking the most attractive in emerging markets based on exchange rate valuation metrics, Jens Nystedt, managing director at Morgan Stanley Investment Management, said in a phone interview from Jakarta yesterday.

The firm also favours government bonds in those countries, he said.

Prime Minister Najib Abdul Razak has come under pressure to step down over a financial scandal. While rallies across Kuala Lumpur mainly passed without incident, police fired water cannons to disperse government supporters known as red shirts yesterday as a group tried to enter the capital’s Chinatown, fuelling concern over race relations.

Markets reacted with a “little bit of a euphoria” as some people had anticipated a less-than-peaceful rally, said James Lau, a Kuala Lumpur-based investment director at Pheim Asset Management Asia.

The KLCI has risen about 5 percent in the past three days and earlier climbed to a one-month high. The gauge closed at a three-year low on Aug 24 amidst an exit from emerging markets as Chinese growth slowed and investors prepared for higher US interest rates.

Stocks jumped on Sept 14 after Najib said the government will use its ValueCap Sdn Bhd fund to support the nation’s equities with an injection of as much as RM20 billion.

The rally in stocks has “basically been driven by a surge in oil prices overnight,” said Geoffrey Ng, director at Fortress Capital Asset Management Sdn Bhd in Kuala Lumpur overseeing about RM1 billion. “Being an oil-exporting nation, any positive movement in oil is generally good - the correlation with the Malaysian market is quite positive.”

Bonds rise

While the ringgit’s gain trimmed September’s loss to 1.3 percent, it is still down 24 percent in the past year. The price of Brent crude has halved in 12 months, helping drive the currency to its lowest level in more than 17 years.

Futures show 32 percent odds that the Fed will move today, and a bigger 44 percent chance for an October increase. The likelihood for December is 64 percent. The Bloomberg Dollar Spot Index was little changed after falling 0.4 percent yesterday.

Malaysia’s sovereign notes climbed. The five-year yield fell two basis points to 3.83 percent, according to prices from Bursa Malaysia. The nation’s local currency bonds have returned 0.2 percent in the past month, while Indonesia’s have lost 3.1 percent, Bloomberg indices showed.

- Bloomberg



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