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Malaysian ringgit, shares fall in 2016 on 1MDB woes, outflow worries

KUALA LUMPUR (NewsRise) -The ringgit fell for a fourth year, while Malaysian shares posted their third consecutive annual loss, hurt by ongoing concerns about the health of state-fund 1Malaysia Development and worries about a flight of capital from emerging markets amid rising U.S. interest rates.

The nation's benchmark FTSE Bursa Malaysia KLCI ended 0.2% higher at 1,641.73 points Friday, but fell 3% for the year. The index, which has traded in a 1,600-1,730 range this year, touched its lowest levels in January after crude prices fell and a slump in the Chinese yuan sparked a global selloff. The 130-point annual trading range was the narrowest in at least ten years. The index rose or fell over 1% only 18 times this year.

The ringgit declined 0.03% to 4.4845 against the dollar Friday, its lowest level since 1998. The currency ended the year 4.5% lower, weighed down by sharp losses in November as the dollar and U.S. Treasury yields strengthened in the wake of Donald Trump's unexpected election win. The currency rose to around 3.85 levels this year in April, coinciding with the highest levels for KLCI also, as the Federal Reserve's lowered estimate for rate increases in 2016 relieved emerging market investors.

Overseas investors have sold over 3 billion ringgit ($668.7 million) in local shares this year, less than a sixth of the 20 billion ringgit outflow witnessed in 2015. Foreign investors were net buyers in equities till April. Malaysian bonds witnessed a record monthly outflow of 20 billion ringgit in November amid expectations of increasing U.S. borrowing costs following Trump's victory.

The ringgit slumped almost 6% in May and the KLCI shed about 3% in April and May each after troubled state-fund 1MDB missed interest payments on bonds issued by its unit 1MDB Energy amid a dispute with Abu Dhabi's International Petroleum Investment Corporation, co-guarantor of the bonds. The payment was ultimately settled by IPIC. The fund, which was at the center of a graft scandal last year, remains the subject of money laundering investigations in at least six countries, according to Reuters.

Most regional currencies and stock indexes have come under pressure since Trump's election on Nov. 8 amid bets his fiscal policies will boost inflation and growth for the world's largest economy and result in higher interest rates. Earlier this month, the Fed raised interest rates for the first time this year and forecast a quicker pace of rate increases in 2017. U.S. stocks have risen to record highs since Trump's win.

Britain's shock vote to leave the European Union caused a kneejerk selloff across markets in June, but assurances of accommodative monetary policies by major central banks helped assets recover. Bank Negara Malaysia cut its benchmark rate by 25 basis points to 3% in July, citing uncertainty caused by the so-called Brexit.

Losses in the oil-exporting nation's assets came despite an over 50% rebound in Brent crude prices. Hopes that coordinated output cuts by major producers will help ease a supply glut have helped global oil prices chalk up their first annual gain since 2012.

Analysts are cautiously optimistic about Malaysian markets in 2017.

"Moving forward, earnings growth is expected to improve going forward in line with increasing construction activities, stabilizing crude oil prices, coupled with favorable macro growth outlook," MIDF Research said in a note. "Earnings growth in 2017 may yet be stronger than what's seen so far in 2016, which increases the probability of the equity benchmark to inch up from its current sideways performance."

MIDF Research and CIMB Investment Bank expect the KLCI to rise to 1,830 and 1,820 levels in 2017 respectively, while Public Investment Bank and Maybank Investment Bank expect a more conservative 1,750 level by the end of next year.

Most other regional indexes managed to end higher for the year, despite the specter of rising U.S. rates. The MSCI Asia Pacific Index, excluding Japan, rose over 3% in 2016.

In Southeast Asian markets, Indonesia's Jakarta Stock Exchange Composite added over 15%, while Thailand's SET index advanced almost 20%. Philippine's PSE Composite slipped 3.9% and Singapore's Straits Times eked out a marginal gain.

In the rest of Asia, Hong Kong's Hang Seng eked out a 0.4% gain, South Korea's Kospi added 3.3%. China's Shanghai Composite slipped over 12%, while Japan's Nikkei 225 edged 0.4% higher.

Seventeen of the 30 constituents on the KLCI ended lower in 2016, with mobile operators leading losses. Maxis and Telekom Malaysia slipped over 10% each, DiGi.Com fell over 8% and Axiata Group shed more than a third of its value. The lackluster earnings and bleak outlook for the sector amid intense price competition weighed on the telecommunication stocks in 2016.

British American Tobacco Malaysia lost more than 20% this year, as demand remained under pressure due to cigarette price increases after an excise hike last year. Illegal cigarette trade continued to impact the company's volumes.

Hap Seng Consolidated extended gains for a fifth consecutive year to rise 37%. Analysts expect that improved production levels, better prices for its plantation segment and optimism surrounding its property division will boost the stock next year.

--Jason Ng and Nimesh Vora

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