PETALING JAYA: The ringgit fell to 17-year lows yesterday as Chinese stocks slumped amid a drop in global crude oil prices.

The ringgit has fallen more than 8% versus the US dollar year-to-date and closed at 3.82. The ringgit’s decline yesterday mirrored that of regional currencies following the slump in Chinese equities, with the Shanghai Composite Index falling 8.5%. Crude oil retreated further, with the global benchmark Brent trading at US$54.53 at 5pm, down from Friday’s close of US$54.62 per barrel. US benchmark West Texas Intermediate or WTI was trading at US$47.98, down from Friday’s close of US$48.14.

However, rating agencies remain positive on the country’s economic and fiscal fundamentals, with Standard & Poor’s Ratings Services (S&P) reaffirming Malaysia’s sovereign credit rating at A-/A-2 for foreign currency and A/A-1 for local currency ratings.

The rating agency has also affirmed the country’s Asean regional scale rating at axAAA/axA-1+.

A combination of weak Chinese economic data, an impending US rate hike and weak commodity prices have weighed on the ringgit and Malaysia’s outlook this year. A technical analyst said the ringgit would definitely hit 4.00 to the US dollar. “There will be some resistance at the 3.93 level,” he told StarBiz, adding that there would be strong resistance at the 4.00 to 4.05 level.

“A number of factors will influence the ringgit’s outlook, including crude oil prices, domestic politics and the flow of foreign funds,” he said. Year-to-date, an estimated RM10bil has exited the local bourse.

Meanwhile, Minister in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar said compared to the 1997/1998 Asian financial crisis, the country “is better prepared to face these challenges”. He pointed out that the economy was less dependent on energy revenue now.

He said on the sidelines of a signing ceremony between AirAsia Bhd and Destini Bhd that the Government would continue to focus on the fundamentals, as well as roll out the initiatives to strengthen and diversify the economy.

S&P analyst Phua Yee Farn said in a report that the recent allegations of graft involving 1Malaysia Development Bhd (1MDB) would not impede policymaking. “We expect the Government to stay the course on its fiscal and economic reforms,” he said.

Phua said the rating agency does not expect the decline in crude oil prices to derail the country’s long-term fiscal consolidation. “The country’s strong external position and fairly diverse economy can absorb some weakness in the oil and gas (O&G) sector,” he said.

Phua said the ratings reflected the country’s strong external position and considerable monetary flexibility.

“We weigh these strengths against Malaysia’s moderate fiscal deficits and government debt burden, and our belief that corruption allegations involving 1MDB will not impede current policy flexibility and responsiveness.”

In a statement on S&P’s reaffirmation of Malaysia’s long-term foreign currency credit rating at A- with a stable outlook, Treasury secretary-general Tan Sri Dr Mohd Irwan Serigar Abdullah said the Government welcomed the move and noted that S&P was the second rating agency to affirm the A- rating for Malaysia after Fitch’s rating in June.

“S&P acknowledges the Government’s pragmatic management of the economy and steadfast commitment to fiscal reforms, in particular the fuel subsidy rationalisation and revenue diversification through the goods and services tax.”

He noted that the rating was underpinned by several factors, such as Malaysia’s strong external position as reflected in the continued current account surpluses despite weaker commodity prices and slower external demand; monetary flexibility that helped to absorb economic shocks; a deep capital market that reduced dependence on external borrowing; and the Government’s decisive implementation of fiscal measures.

“Further, S&P has expressed confidence in Malaysia’s responsive and effective policymaking. In this regard, S&P believes that issues surrounding 1MDB will not hinder the Government’s resolve to pursue economic and fiscal reforms.”

The Government had in January revised the fiscal deficit target for this year to 3.2% of gross domestic product (GDP) from 3% after crude oil prices fell by more than half. The fiscal deficit-to-GDP stood at 3.5% last year. Overall debt-to-GDP levels stood at RM582.8bil or 54.5% at the end of last year, near the 55% self-imposed limit. This, however, does not include contingent liabilities.

Phua said Malaysia’s strong external position, a result of years of current account surpluses, underpinned the ratings. “We believe this position can withstand a slowdown in the O&G sector over the next two years.”

He said external indicators were likely to remain unchanged, assuming continued healthy trade surpluses.

“For 2015, we expect a weaker ringgit to boost exports of manufactured goods, and partly offset the impact of lower oil prices on Malaysia’s energy exports.”

The S&P report also pointed out that Malaysia’s fiscal performance had been improving.

“We project the average annual increase in general government debt at 2.9% of GDP over 2015 to 2018, and the country’s budget deficit to narrow toward a balance by 2020.”

The annual increase in general government debt had averaged 6% of GDP over 2009 to 2012 in the aftermath of the global financial crisis.

In a statement, Areca Capital Sdn Bhd chief executive officer Danny Wong said the Chinese equity rout stemming from concerns over slowing growth, together with the drop in global oil prices, had affected investor sentiment.

However, he said Malaysia’s economic fundamentals should prevail despite the weaker ringgit, as the three main credit rating agencies had affirmed their outlook on the country’s sovereign rating.

Fitch Ratings had maintained Malaysia’s long-term foreign currency issuer default rating at A- and local currency at A, with outlook revised to stable from negative previously on June 30, while Moody’s Investors Service affirmed the sovereign credit rating at A3 with a positive outlook at the end of January.