Ringgit drops to 5-month low on stock outflows

Ringgit drops to 5-month low on stock outflows
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KUALA LUMPUR (June 26): Ringgit falls to a five-month low as foreign funds continue to sell the nation’s stocks on concerns over the fiscal implications from the 1MDB scandal and as China-U.S. trade tensions simmer.

* USD/MYR rises 0.1% to 4.0212; touched 4.0227, highest since Jan. 4 as foreign investors were net sellers of stocks on Monday for the 34th consecutive session

** 1-month implied volatility increases 2 vol to 5.50%

** Support for spot 3.9825, 3.9505, 3.9430; resistance 4.0352, 4.0477, 4.0920

* Sentiment towards EM Asian FX is fragile after the PBOC’s targeted RRR cut failed to lend support and the yuan renewed recent declines, says Ken Cheung, a senior currency strategist at Mizuho Bank in Hong Kong

** Still, the recent drop in the dollar should provide some respite to regional currencies

* JPMorgan Chase is underweight Malaysian stocks to reprice policy risks after surprise election outcome, according to June 22 report

** NOTE: Overseas investors sold $2.08b of Malaysian equities this quarter

* Govt’s review of large infrastructure projects bears watching as it may have implications for Malaysia’s growth and fiscal balance, OCBC writes in a note

** Projects that could be affected include the Pan-Borneo Highway and KTM double-tracking rail

* 10-year govt bond yield ended little changed at 4.23% Monday

* Malaysia’s costs of servicing 1MDB debt may reach as much as RM34.6b from 2019 to 2023 and full crystallization of the borrowings has become highly likely, according to Maybank Kim Eng Securities

* PM Mahathir’s Cabinet will be sworn in on July 2: palace official