KUALA LUMPUR, Aug 12 — Malaysia’s ringgit plunged beyond 4 to the dollar for the first time since 1998 as investors flee the nation’s assets amid a slowing economy and controversy over finances linked to Prime Minister Datuk Seri Najib Razak.

China’s surprise devaluation of the yuan lumped more pressure on the ringgit, Asia’s worst-performing currency in the past 12 months. Vietnam widened the dong’s trading band on Wednesday, adding to speculation policy makers will reignite a currency war to weaken exchange rates and revive faltering exports. Brent crude has more than halved from a 2014 peak, hurting revenue for oil-exporting Malaysia.

The ringgit tumbled 1.9 per cent to 4.0365 a dollar as of 1.38pm in Kuala Lumpur in its biggest loss since 1998, according to prices from local banks compiled by Bloomberg. It fell to a low of 4.0375. Malaysia’s benchmark stock index headed for its lowest close since February 2013 and the 10-year government bond yield rose to a seven-month high.

“China’s yuan move is recalibrating Asian currencies,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd “If the yuan drops another 5 per cent to 10 per cent, then 4.20 for the ringgit isn’t far-fetched.”

Najib has come under the spotlight over a RM2.6 billion (US$645 million) donation deposited into his personal bank accounts and which was initially linked to debt-ridden state investment company 1Malaysia Development Bhd The ringgit has dropped 21 per cent in the past year and slumped to a record 4.8850 per dollar during the 1997-98 Asian financial crisis, when former Premier Tun Dr Mahathir Mohamad imposed capital controls and pegged the currency at 3.8.

GDP report

A government report tomorrow may show Malaysia’s second- quarter economic growth slowed to 4.5 per cent from 5.6 per cent in the previous three months, according to the median estimate in a Bloomberg survey. That would be the slowest pace since early 2013. Exports dropped in four of the first six months of 2015 and shipments from China, the Southeast Asian nation’s biggest market, contracted in July for a fifth month this year.

Global funds have pulled about US$3 billion from the country’s equities in 2015, the most since 2008, just as a US interest-rate increase looms. The FTSE Bursa Malaysia KLCI Index has lost more than 13 per cent from this year’s high in April. Overseas investors cut holdings of Malaysian government and corporate debt to the lowest in three years in July.

Foreign-exchange reserves dropped below US$100 billion last month for the first time since 2010 to US$96.7 billion. The central bank will continue to “smoothen out excessive volatility,” Julia Goh, an analyst at Singapore’s United Overseas Bank Ltd, wrote in a research note on Tuesday.

The monetary authority has spent US$25 billion defending the currency since July 2014, after adjusting for valuation effects, Philip McNicholas, a Singapore-based economist at BNP Paribas SA, wrote in a July 24 report.

Volatility surge

One-month implied volatility for the ringgit, a measure of expected exchange-rate swings used to price options, is the highest in Asia at 13.5 per cent. Twelve-month non-deliverable forwards sank 1.4 per cent to 4.2337 on Wednesday.

As Malaysian bonds declined, the cost to insure sovereign debt for five years using credit-default swaps climbed to 167, the highest since 2011, CMA prices show. The 10-year yield rose six basis points to 4.25 per cent.

“The lower oil price and devalued yuan should be negative for the ringgit,” said Masashi Murata, vice president at Brown Brothers Harriman & Co in Tokyo. “A weaker ringgit is negative for Malaysian domestic demand as it boosts inflation expectations and money outflow.” — Bloomberg