Emerging Asian currencies fell to their lowest in years on Monday as a rout in Chinese stocks accelerated a flight from risky assets on intensifying fears of slowing global growth. The Malaysian ringgit hit a fresh pre-peg 17-year trough after Switzerland opened criminal proceedings on troubled state fund 1Malaysia Development Berhad (1MDB), adding to the country's political woes.
Indonesia's rupiah slid to its weakest since the Asian financial crisis 17 years ago as falling commodity prices clouded its exports and economic prospects. The Taiwan dollar and the Thai baht hit six-year lows. The Singapore dollar and the Philippine peso also skidded to their weakest since June 2010. Foreign exchange authorities in Asian countries such as South Korea and Indonesia were spotted intervening to stem their currency losses, traders said.
Chinese shares tumbled 9 percent, driving regional stocks to 3-year troughs. Most government bond prices in the region fell. The cost of insuring against default on sovereign debt rose across the board. Credit default swaps rose 10-20 basis points (bps), with Thailand, Indonesia and Malaysia seeing the biggest rise. Signs of deepening slowdown in China and weak growth in the United States and Europe further dented the outlook for the global economy, hurting global equities and commodity prices. "Investors need to reduce risk with these sharp moves and it doesn't finish in one day," said Sean Yokota, head of Asia strategy for Scandinavian bank SEB in Singapore. "People are either looking at the US or China policy reaction to change course. Looking at China to deliver a bazooka is a mistake and only a dovish Fed can change the direction short term," Yokota said.
A 50-basis-point cut in China's bank reserve requirement ratio (RRR) is not enough to change the current market sell-off, he added. Investors had expected China's central bank to lower RRR during the weekend. With growing risk aversion, the dollar fell against a basket of six major currencies including the yen. That reflected doubts that the US Federal Reserve will be able to raise interest rates next month, traders said.
The ringgit fell as much as 1.8 percent to 4.2590 per dollar, its weakest since August 11, 1998. Malaysia pegged the currency at 3.8000 in September 1998 and maintained it there until 2005. Switzerland's Office of the Attorney General has opened criminal proceedings relating to 1MDB, a spokesman of the Swiss authority said on Friday.
Kuala Lumpur stocks lost 1.8 percent, while the 10-year government bond yield rose to 4.386 percent, its highest since July 2009. The ringgit is the worst-performing Asian currency so far this year, dragged down by deteriorating fundamentals and the fallout from a widening scandal involving the state fund 1MDB. Allegations of graft and financial mismanagement at 1MDB, whose advisory board is chaired by Prime Minister Najib Razak, and a slide in oil and commodities prices have acted to push the ringgit to 17-year lows. Malaysia is a major supplier of natural liquefied gas and palm oil. Malaysia's international reserves fell to $94.5 billion as of August 14 from $96.7 billion as of July 31, central bank data showed on Friday. The drop was smaller than a $3.8 billion drop in the second half of July.
The rupiah lost as much as 0.8 percent to 14,045 per dollar, its weakest since July 1998 as foreign investors unloaded the currency. The Indonesian currency fell in non-deliverable forwards markets as managers of foreign reserves sold it, traders said. Jakarta shares plunged 5 percent. The rupiah pared some of its earlier losses as the central bank was spotted defending the currency, traders said. Bank Indonesia's governor said the authority will not take part in global competitive currency devaluation and it is always in the market to stabilise the rupiah.
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