Fear of cash pull out by foreign investors as the ringgit tumbles

The Malaysian ringgit tumbled to another 17-year low versus the dollar on Tuesday, as persistent worries about the health of the Chinese and global economies dented risk appetites and Asian currencies.

The ringgit shed more than 1% and touched a low of 4.4770 against the dollar, its lowest level since January 1998, according to Thomson Reuters data.

Asian currencies fell broadly. The Thai baht hit an eight-year low at around 36.50, while the Singapore dollar set a six-year low of S$1.4335. The Indonesian rupiah set a fresh 17-year low of 14,730 versus the dollar.

"Externally, risk sentiment has turned much worse again led by global equities," said Divya Devesh, Asia FX strategist for Standard Chartered Bank in Singapore.

"Malaysian ringgit continues to be one of the most vulnerable currencies in Asia with relatively low FX reserves cover, high foreign holding of domestic debt and exposure to commodities prices," he added.

While the ringgit now looks cheap on a real effective exchange rate basis, broader market sentiment would need to stabilise for that to become the key driver and help the currency consolidate, Devesh added.

One headwind is the risk of further outflows from Malaysian bonds.

About 11 billion ringgit (US$2.5 billion) worth of government bonds are due to mature on Wednesday and there are concerns that foreigners, who own on average 45% of outstanding bonds, could pull some of their cash out rather than re-invest it in Malaysian debt.

The ringgit is the worst-performing emerging Asian currency this year. Traders say one factor hurting it has been allegations of graft and mismanagement linked to indebted state fund 1Malaysia Development Berhad (1MDB). Prime Minister Najib Razak, chairman of its advisory board, has denied any wrongdoing.