RINGGIT TUMBLES TOWARDS 4.30 ON FEARS OF NAJIB CHAOS: Will he use Bersih 4 to trigger 'emergency' rule

KUALA LUMPUR - The Malaysian Ringgit crashed to a new low of 4.2995 against the U.S. dollar in early Tuesday trade, shocking the nation and 'paralysing' Prime Minister Najib Razak, who is also the Finance Minister.

According to Bloomberg data, the Ringgit hit the shock new low at 8.20am, and at 10.40am, it was hovering at 4.2852.

"There is little doubt that there will be continued pressure on Ringgit and it might go to 4.50 very soon. It's not just external factors but very clearly, investors are dumping the Ringgit and hoarding the dollar. There is a political crisis going on and many people are afraid that with the Bersih 4 rally this weekend, Najib might do something ala Thailand," a trader, who requested anonymity, told Malaysia Chronicle.

"Apart from panic factors, Najib has to blame himself. He hasn't done anything to ease investors' fears. The announcement of the new economic committee is too weak and everybody has already written it off. In crisis like these, you need very firm and credible financial leadership. This is completely absent, so you can't blame investors for fleeing. This is uncharted territory."

Stubborn refusal to resign might result in violence

Indeed, there are concerns Najib might impose a form of emergency rule and arrest key leaders especially from within his own Umno party including influential ex-premier Mahathir Mohamad and former deputy prime minister Muhyiddin Yassin and their supporters.

The 62-year-old Najib has repeatedly vowed to stay in power, using increasingly aggressive forms of symbolism such as describing himself as a 'Bugis warrior' who never gives up when warning off critics who have been pleading with him to resign as the Malaysian economy and markets nosedived over his massive 1MDB corruption scandal.

Just days ago, despite the precarious state of the Ringgit and the massive loss of support from his party mates, Najib still insisted it was his sacred obligation to lead the country and no one should hijack his position.

"As Prime Minister, it is my responsibility to make the right decisions for all Malaysians. More than that, it is my duty," he wrote on his Facebook. "It is a sacred trust, and no one should attempt to interfere with or hijack that obligation to lead."

Can Najib survive Bersih 4

Najib has been able to stay in power, supported by a small but power circle that includes his hand-picked Cabinet. But elsewhere, support is scant with anti-Najib fever sweeping the populace.

This weekend, people's movement Bersih 4 is due to hold a rally where hundreds of thousands of Malaysians are expected to attend to call on Najib to step down. Even members of his own Umno party are expected to join in.

It is worth noting that Mahathir, one of wiliest politicians, has chosen not to take part but will instead speak at an Umno event in Pasir Gudang, Johor, where he is expected to be feted and urged to step up efforts to dislodge Najib.

How low can the Ringgit go?

Meanwhile, Malaysians are worried at how much worse can the ringgit fare against the US dollar, or rather, will anything work to break the freefall the local currency is experiencing.

According to The Sundaily, the local currency’s trend now is as unpredictable as the weather, even for seasoned analysts.

Early this month, analysts were certain that the currency would not hit the 4.00 mark against the US dollar.

The expected Federal Reserve rate hike, domestic issues and the eurozone crisis were the main considerations.

In fact, none of the analyst forecasts compiled by Bloomberg expected the ringgit to fall to RM4.00 by this year.

Alas, on Aug 12 the currency weakened past the key psychological level of 4.00 to the US dollar, a level not seen since the Asian financial crisis in 1998. The culprit then was the devaluation of the yuan.

The rapid pace of the ringgit’s decline baffled analysts and even foreign exchange dealers, with many refusing to give forecasts for the ringgit, as others just sighed at the question.

Government bonds held by foreigners still UNWOUND

According to Rupinder Singh who penned the article in The Sundaily titled The ringgit – a bet on sentiment', a prominent local economist recently told him that any analyst or economist that speaks of the ringgit today “risks losing their credibility”.

In a one-month period, the ringgit’s value has eroded by 10.92%, while the FBM KLCI has deteriorated by 9.59%.

Currency traders have upped their bearish bets on the ringgit since the currency passed the chart support level around 3.800, the level at which Malaysia had fixed it to the dollar during the 1997/98 Asian financial crisis. The peg lasted until July 2005.

The ringgit is the weakest performer this year among regional currencies as it is caught in the country’s changing domestic and external cross currents.

Apart from the expectation of a US interest rate hike, which has recently cooled, and China’s stock plunge, the sharper drop in the ringgit compared with its peers was made worse by the ongoing drop in global energy prices as well as negative news flow on the domestic political front. All these factors have and are greatly sapping investors’ confidence in the country.

Let’s not forget that foreign investors hold nearly half of outstanding Malaysian government bonds.

However, concern that China’s economic slowdown will eventually affect Malaysia’s economy has led to further capital outflow, mainly from the bond market.

Together with other fixed income instruments, investments held by foreign investors stood at RM206.8 billion as at end-July, a drop from the peak of RM257.2 billion in July 2014, indicating that foreign investors have been unwinding their holdings.

Still, this amount takes up over 50% of Malaysia’s foreign exchange reserves, hinting that Malaysia could be vulnerable to a sudden reversal of fund flows.

“Capital flight of this size could come as a ‘shock’ to the system and is important for Malaysia to continue maintaining investor confidence in its management of the economy,” RHB Research said in a recent report.

MIDF Research yesterday cautioned that a higher pace of capital outflow will push the ringgit lower, despite no significant evidence yet of deteriorating economic fundamentals.

As the drop in the ringgit is driven more by negative sentiment than reflective of the fundamental condition of Malaysia’s economy, predicting the direction of the ringgit is getting as hazy as the weather . - Malaysia Chronicle