JAKARTA • International investors are selling Malaysian stocks at the quickest pace in Asia as Prime Minister Najib Razak struggles to contain a political scandal and doubts grow over the outlook for the economy.
Foreign funds have pulled a net RM11.7 billion (S$354 million) of the nation's shares this year as the benchmark FTSE Bursa Malaysia KLCI Index retreated 4.5 per cent. The ringgit has slumped to its weakest since 1998 after tumbling 11 per cent against the US dollar, the biggest drop among Asian currencies.
Overseas money managers are withdrawing funds amid concern that the crisis will distract Datuk Seri Najib as a commodities rout and the prospect of higher US interest rates threaten growth.
The Prime Minister is fighting off a scandal linked to state investor 1Malaysia Development Berhad (1MDB). A probe into US$700 million (S$970 million) that was deposited into Mr Najib's personal accounts found that the funds were donations from the Middle East.
"Already shaky trust of foreign investors is being eroded," said strategist Mixo Das of Nomura Holdings in Singapore.
Net foreign sales of Malaysian stocks this year are almost double the RM6.9 billion for the whole of 2014, exchange data shows. Overseas investors have been net sellers for 14 straight weeks through the week ending on July 31, the longest sell-off since 2008, according to MIDF Amanah Investment Bank.
International ownership of government and corporate debt fell 2.4 per cent last month to RM206.8 billion, the lowest since August 2012, the central bank reported yesterday.
The KLCI has slumped 9.7 per cent from its April 21 high, including a 1.8 per cent decline on Thursday that was the biggest this year. The gauge lost 0.7 per cent yesterday. The ringgit fell 0.4 per cent, capping its biggest weekly slump in eight months.
Volatility is increasing, with a gauge of 30-day price swings rising to its highest level in six months. The stock measure trades at 15.2 times projected 12-month earnings, or about 10 per cent higher than the MSCI South-east Asia Index.
For Aberdeen Asset Management managing director Gerald Ambrose, the political crisis means that Malaysia risks losing its status as a safe haven in the region.
"Long-term political stability has long been one of Malaysia's trump cards, but it's not so easy to say that nowadays," said Mr Ambrose. "Uncertainties surrounding 1MDB and the quite public political spat has clearly not helped foreign investors' sentiment towards the country."
Mr Najib chairs the advisory board of 1MDB and has resisted calls from former premier Mahathir Mohamad to quit over 1MDB's performance as it amassed about RM42 billion of debt in less than five years.
Franklin Templeton Investment is sticking with its investments in Malaysian stocks. "We actually stayed in and we will continue to stay in," Mr Mark Mobius, chairman of the emerging markets group at Franklin Templeton Investment, said.
"We are still finding opportunities in that market and particularly when there are concerns there, you can see some possibilities."