HONG KONG, Aug 14 — Malaysia’s ringgit plunged the most since 1998 on concern the nation is running out of ammunition to defend its currency amid a political scandal, a yuan devaluation and slumping oil prices. Stocks and bonds tumbled.

The ringgit led a retreat in Asia this week as Governor Zeti Akhtar Aziz said yesterday the central bank will need to rebuild foreign-exchange reserves that have fallen below US$100 billion (RM406.2 billion) for the first time since 2010. Government bond yields surged on Friday after better-than-expected economic data on Thursday failed to dispel the gloom, with the benchmark stock index heading for its lowest close since 2012.

“Foreigners are still selling,” said Ang Kok Heng, chief investment officer at Phillip Capital Management Bhd. in Kuala Lumpur. “Unless the ringgit stops weakening, I don’t know how long the selling will continue.”

The Malaysian currency slumped as much as 2.8 per cent, its biggest intraday loss since 1998, before trading 1.2 per cent lower at 4.0575 a dollar as of 12:33 p.m. in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. It slid to a 17-year low of 4.1225 and is down 14 per cent this year in Asia’s worst performance.

The benchmark stock index fell 5.3 per cent this week, the most since 2008, and 1.8 per cent today to 1593.18. SapuraKencana Petroleum Bhd., the nation’s largest oil and gas services provider, slid 7.7 per cent, the biggest drag on the gauge that is down 15 per cent from this year’s peak in April.

‘Vicious cycle’

The yield on three-year sovereign bonds surged 24 basis points, the most since June 1, today to 3.60 per cent, according to Bursa Malaysia prices. The yield on the 10-year notes climbed 11 basis points to 4.29 per cent, taking its increase in the past month to 24 basis points.

Overseas investors cut holdings of Malaysian bonds by 2.4 per cent in July to RM206.8 billion, the least since August 2012, official data released last week show.

It’s a “bit of a vicious cycle from the currency,” said Saktiandi Supaat, head of foreign-exchange research at Malayan banking Bhd. in Singapore. “Declines in the ringgit beyond 4.05 a dollar are triggering fixed-income outflows.”

China’s surprise devaluation put more downward pressure on the ringgit and shares, which were already reeling from falling crude and a scandal involving Prime Minister Datuk Seri Najib Razak. The impact of the ringgit’s drop is manageable and the economy will remain on a steady growth path, Governor Zeti said yesterday.

“Malaysia is probably a relatively easier target for markets and this is why we’re seeing continued outflows and pressure on the currency,” said Mitul Kotecha, head of Asia Pacific foreign-exchange strategy at Barclays Plc in Singapore. “I don’t think this sort of pressure is justified at these sorts of levels.”

No peg plans  

Malaysia’s economy grew 4.9 per cent in the three months through June from a year earlier, beating the 4.5 per cent median estimate in a Bloomberg survey. That was the slowest pace since the third quarter of 2013. The country posted a current-account surplus of US$7.6 billion, which was also better than forecast.

Governor Zeti said yesterday the nation had no plans to reintroduce capital controls nor to re-peg the currency, which it did at 3.8 from 1998 through 2005.

It doesn’t look like “1998 revisited because Malaysia is not held down by a fixed exchange rate and forced to defend that fixed rate,” said Alan Richardson, a Hong Kong-based money manager at Samsung Asset Management Ltd., which oversees US$112 billion.

A 17 per cent slide in foreign-exchange reserves this year to US$96.7 billion at the end of July suggests the central bank has been intervening to prop up the ringgit, just as Najib faces a probe of fund transfers into his personal bank accounts. Political machinations were among the causes of the ringgit’s decline, the prime minister wrote in his blog yesterday.

1MDB scandal

Najib is fighting accusations that about US$700 million may have moved through government agencies and companies linked to debt-ridden state investment company 1Malaysia Development Bhd. before ending up in accounts bearing his name. The Malaysian Anti-Corruption Commission said the 2.6 billion ringgit in Najib’s accounts was from donors in the Middle East.

The opposition People’s Justice Party said this week it’s suing Najib, alleging that the premier used RM2.6 billion that was transferred to his accounts for campaign purposes during the last general election, which would’ve been more than 26 times the amount Najib’s alliance was allowed to spend.

“The ringgit remains vulnerable,” said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd. “Governor Zeti said that the central bank will set about rebuilding reserves, which means there will be a limit to any rally.” — Bloomberg