Malaysia’s Ringgit Slumps as Production Shrinks; Bonds Advance

David Yong, Bloomberg

Malaysia’s ringgit fell by the most since May on speculation a global economic slowdown will damp demand for Asian exports and force cutbacks by local manufacturers. Bonds gained.

The currency declined to near the lowest in two weeks after a government report showed industrial production contracted in September for the first time since March 2007. The Kuala Lumpur Composite Index of shares fell as much as 1.1 percent, dragging the MSCI Asia Pacific Index to the lowest this month.

“The outlook for growth is extremely negative,” said James McCormack, head of Asia sovereign ratings at Fitch Ratings in Hong Kong. South Korea and Malaysia are “the most affected in the region” as growth, capital flows and commodity prices ease, he said in a Bloomberg Television interview today.

The ringgit dropped 1.1 percent to 3.5855 versus the dollar as of 4:43 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. It reached 3.5880, the lowest since Oct. 29, adding to a 2 percent loss in the past month.

Fitch yesterday cut the outlook on Malaysia’s credit rating to “stable” from “positive,” citing a slowdown in electronics exports and lower commodity prices on its trade balance. The country’s rating remained at A-, the fourth-lowest investment grade.

Production at factories, utilities and mines dropped 1.7 percent from a year earlier after a 1.2 percent gain in August, the statistics department said today. Economists had expected a 0.6 percent increase, according to a Bloomberg News survey.

“The global downturn will eventually take its toll on the Malaysian economy, which will soon be manifested in the headline manufacturing and overall GDP growth in the coming quarters,” said Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore. “Industrial production has been on a steady decline over the last few months.”

Bonds Advance

Deputy Prime Minister Najib Razak on Nov. 4 cut the nation’s 2009 growth forecast to 3.5 percent from 5.4 percent. That would be the slowest economic expansion since 2001. The government on the same day unveiled a 7 billion ringgit ($1.96 billion) package to spur growth.

Five-year government notes rose for a third day on speculation slowing growth will fuel demand for debt as investors switch to buying a new benchmark security before an auction this week.

The yield on the 5.094 percent note due in April 2014 fell 2 basis points to 3.83 percent, according to Bursa Malaysia Bhd. The price rose 0.101, or 1.01 ringgit per 1,000 ringgit face amount, to 106.163. A basis point is 0.01 percentage point.

“There’s demand for the new benchmark notes, which should become a more liquid instrument,” said Jamil Baharuddin, a senior treasury dealer at RHB Bank Bhd. in Kuala Lumpur. “There’s this worry about economic slowdown that’s supportive of bond prices.”

The government will auction 3 billion ringgit of the April 2014 notes in a so-called reopening on Nov. 13, which will replace the current benchmark maturing in July 2013. The 2014 debt yielded 3.83 percent in pre-auction trading, according to Amanah Butler Sdn., the nation’s biggest debt broker.

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