Malaysian Ringgit Falls to 21-Month Low on Slowdown; Bonds Gain

By David Yong

Oct. 16 (Bloomberg) -- Malaysia's ringgit fell to the lowest since the start of 2007 on concern Asia's economic growth will cool as U.S. spending slumps. Bonds gained.

The currency weakened for a second day after the U.S. reported the biggest drop in retail sales in three years, fanning concern the world's biggest economy is headed for a recession. Shares dropped across the Asia-Pacific region after U.S. stocks tumbled by the most since the 1987 crash.

``The U.S. should already be in a recession and that will have an impact on Asian exports,'' said Ang Kok Heng, who manages $156 million as chief investment officer at Phillip Capital Management in Kuala Lumpur. ``Investors are making a 180-degree retreat'' from emerging-market assets, he said.

The ringgit fell 0.3 percent to 3.5222 per dollar as of 12:09 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. It earlier reached 3.5275, the lowest since January 2007.

Malaysia's economic growth is forecast to slow to 3.4 percent in 2009 from an estimated 5.3 percent this year, the Malaysian Institute of Economic Research said today. That would be the slowest expansion since 2001.

``It is likely that growth would deteriorate in late 2008, as the Malaysian economy takes the hit from the knock-on effects of a flagging global economy,'' the partially government-funded research institute said in a statement. The outlook for the global economy is ``turning increasingly dismal,'' MIER said.

U.S. Recession Risk

U.S. consumer purchases fell 1.2 percent in September, extending the decline to three straight months, the first time that's happened since comparable records began in 1992, Commerce Department figures showed yesterday. Malaysia shipped 11 percent of its exports to the U.S. in the first eight months of this year, making the market its largest after Singapore.

San Francisco Federal Reserve President Janet Yellen said yesterday the U.S. may already be in a recession. The Standard & Poor's 500 Index fell 9.1 percent yesterday and the Kuala Lumpur Composite Index today slid as much as 3.8 percent.

Ten-year government bonds gained for a second day on speculation investors will favor the safest assets.

The yield on the 4.24 percent note maturing in February 2018 fell 7 basis points to 4.12 percent, the lowest since June 2, according to Bursa Malaysia Bhd. The price rose 0.5, or 5 ringgit per 1,000 ringgit face amount, to 100.90.

``The worries have shifted from financial industry collapse to economic recession,'' said Phua Lee Kerk, who manages $34 million at Pheim Unit Trust Bhd. in Kuala Lumpur. ``In a scenario of slower corporate earnings, recession and interest- rate cuts, bonds will become more attractive.''

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.