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Asia’s currencies posted their biggest monthly loss in three years, led by Malaysia’s ringgit, after a yuan devaluation heightened the risk of a currency war in the region as the U.S. prepares to raise interest rates.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, retreated 2.6 percent in August, the biggest monthly decline since May 2012. Global funds sold about $10 billion more equities than they bought in South Korea, India, Taiwan, Thailand, Indonesia and the Philippines, the latest exchange data show.

China’s Aug. 11 devaluation took investors by surprise and sparked concern other Asian countries will favor depreciation to protect exports. The ringgit tumbled 8.6 percent this month, the worst performance since 1998, as a political scandal sapped investor confidence and a plunge in commodities prices dimmed the outlook for Malaysian shipments. Indonesia’s rupiah fell 3.8 percent, the most in 11 months, and the yuan declined 2.7 percent as its one-month implied volatility quadrupled amid a shift to a more market-determined exchange rate.

Asian currencies “now have to deal with a new uncertainty in the form of a more market-oriented yuan that is potentially more volatile,” said Koon How Heng, a Singapore-based strategist at Credit Suisse Private Bank and Wealth Management. “As investor risk aversion has grown, the increasing selloff in local capital markets and resultant capital flight has added more pressure.”

Malaysian Protests

Tens of thousands of people gathered in Malaysia’s capital over the weekend, demanding the resignation of Prime Minister Najib Razak over claims he received billions of ringgit linked to a troubled state investment fund in his private accounts. Najib has denied the allegations. The furor, coupled with a 23 percent slide in brent crude over the past two months, has contributed to the ringgit’s decline. The currency’s 17 percent slide this year is the worst in Asia.

The rupiah weakened beyond 14,000 a dollar for the first time since 1998 this month as the country’s stocks entered a bear market. The selloff prompted President Joko Widodo’s government to promise a “big” stimulus package to shore up growth, which slowed to the least since 2009 last quarter.

South Korea’s won had a fourth monthly drop, the longest run of losses since 2008, as weak manufacturing data added to concern the economy is slowing just as the U.S. prepares to raise interest rates. Federal Reserve Vice Chairman Stanley Fischer said Saturday there is “good reason to believe” inflation will move higher, keeping the door open to an increase in borrowing costs in September. The won lost 1.1 percent in August.

“Weak economic data may lead to a drop in stocks, and that’ll weaken the won,” said Park Dae Bong, a currency trader at Nonghyup Bank in Seoul. “The market is moving toward dollar-buying again amid expectations of higher U.S. rates this year.”

Dong Devaluation

Vietnam’s dong lost 3 percent in August, its biggest decline since February 2011, as authorities devalued the currency for the third time this year and also widened its trading band in response to China’s depreciation.

Elsewhere in Asia, India’s rupee weakened 3.4 percent against the dollar this month. Taiwan’s currency fell 3 percent, Thailand’s baht dropped 2.3 percent and the Philippine peso declined 2.2 percent.