KLCI falls 1.7% as ringgit weakens to fresh level

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KUALA LUMPUR (Aug 10): The FBM KLCI fell 28.28 points amid a further weakening of the ringgit versus the US dollar to a fresh level today.  

At 5pm, the KLCI settled at 1,654.37 as stocks like Tenaga Nasional Bhd and SapuraKencana Petroleum Bhd declined. The ringgit depreciated to 3.9365 against the US dollar after weakening to a fresh level at 3.9420 earlier.

Interpac Securities Sdn Bhd head of research Pong Teng Siew attributed the drop in the KLCI to the announcement by Bank Negara Malaysia on the country's falling international reserves, which had spurred worries on the direction of the ringgit.

"The KLCI's decline today was mainly due to worries [about] the ringgit's performance, after the central bank announced over the weekend that Malaysia's reserves have fallen quite a bit.

"But with such a steep drop in the index, a rebound usually comes afterwards, as selling activity eases. There could be some short-term opportunities appearing either today or tomorrow. The KLCI may be finding its short-term bottom at 1,639 levels, from a technical perspective," said Pong.

It was reported that Malaysia's international reserves fell below the US$100 billion threshold, at US$96.7 billion as at July 31 this year, according to Bank Negara Malaysia's statement last Friday (Aug 7). This compared to US$100.5 billion on July 15.

Malaysia's international reserves had fallen to current levels as the central bank bought the ringgit with its foreign currency reserves to support the ringgit. As such, falling international reserves led to concerns that Bank Negara would have less ammunition to support the ringgit.

The KLCI had also fallen amid concerns on Malaysia's political backdrop following the recent Cabinet reshuffle. Such political sentiment and other global factors have not augured well for the ringgit.

The global factors include lower crude oil prices and anticipation of US interest rate hikes this year.

The ringgit's strength correlates with crude oil prices as the commodity is a major component of Malaysia's economy. Anticipation of US interest rate hikes this year has resulted in higher demand for US dollar-denominated assets.

Bursa Malaysia saw 1.91 billion shares worth RM1.99 billion exchanged. There were 923 decliners and 94 gainers.

KLCI put warrants FBMKLCI-HR, FBMKLCI-HH and FBMKLCI-HI led gainers while the top active counter was FBMKLCI-HK. Investors buy index-linked put warrants as a hedge against broader market losses.

The decliners list was led by British American Tobacco (M) Bhd and Malaysian Pacific Industries Bhd.