KUALA LUMPUR (Bloomberg) - Malaysian stocks rose the most in more than two years and the ringgit gained after an overnight surge in Brent crude eased concern that finances will deteriorate for Asia's only major oil exporter.
The FTSE Bursa Malaysia KLCI Index of shares was up 2.3 per cent as of 11:07 a.m. in Kuala Lumpur, poised for its biggest advance since May 2013. The ringgit climbed 1.3 per cent to 4.2527 a US dollar, trimming losses for this year's worst- performing Asian currency, prices from local banks compiled by Bloomberg show. Brent crude rose 6.7 per cent on Wednesday, the steepest increase in more than two weeks.
Asian markets were also driven higher as odds for a U.S. interest-rate hike later Thursday fade. Malaysia's central bank Governor Zeti Akhtar Aziz said the country faces a "very challenging" period that it's been able to manage so far and the ringgit's decline has been affected by many factors including domestic ones, according to a report in the local New Straits Times newspaper. The nation isn't headed for a crisis, she said. A demonstration by pro-government supporters on Wednesday passed relatively peacefully.
The rally in stocks has "basically been driven by a surge in oil prices overnight," said Geoffrey Ng, director at Fortress Capital Asset Management Sdn. in Kuala Lumpur overseeing about RM1 billion. "Being an oil- exporting nation, any positive movement in oil is generally good - the correlation with the Malaysian market is quite positive."
The ringgit and Indonesia's rupiah, the two worst- performing currencies in Asia this year, are now looking the most attractive in emerging markets based on exchange-rate valuation metrics, Jens Nystedt, managing director at Morgan Stanley Investment Management, said in a phone interview from Jakarta on Wednesday. The firm also favors government bonds in those countries, he said.
Prime Minister Najib Razak has come under pressure to step down over a financial scandal. Police fired tear gas at government supporters known as Red Shirts on Wednesday as a group tried to enter the capital's Chinatown in what some saw as being racially motivated demonstrations. Markets reacted with a "little bit of a euphoria" as some people had anticipated a less-than-peaceful rally, said James Lau, a Kuala Lumpur-based investment director at Pheim Asset Management Asia.
The KLCIhas risen about 5 per cent in the past three days. The gauge closed at a three-year low on Aug. 24 amid an exit from emerging markets as Chinese growth slowed and investors prepared for higher U.S. interest rates. Stocks jumped on Sept. 14 after Najib said the government will use its ValueCap Sdn. fund to support the nation's equities with an injection of as much as 20 billion ringgit.
While the ringgit's gain trimmed September's loss to 1.4 per cent, it is still down 24 per cent in the past year. The price of Brent crude has halved in 12 months, helping drive the currency to its lowest level in more than 17 years.
"The dollar is on the backfoot because analysts are coming around to the notion that the Federal Reserve may not hike tonight," said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. "That's provided relief for emerging-market currencies, plus the fact that oil prices have rallied." Futures show 32 per cent odds that the Fed will move on Thursday, and a bigger 44 per cent chance for an October increase. The likelihood for December is 64 per cent. The Bloomberg Dollar Spot Index fell 0.1 per cent, adding to Wednesday's 0.4 percent drop.
Malaysia's sovereign notes climbed. The five-year yield fell two basis points to 3.83 percent, according to prices from Bursa Malaysia. The nation's local-currency bonds have returned 0.2 per cent in the past month, while Indonesia's have lost 3.1 per cent, Bloomberg indexes show.