US-China trade spat continues to spook investors

TheEdge Thu, Jun 21, 2018 09:05am - 5 years View Original


KUALA LUMPUR: The latest development in the Sino-American trade dispute continued to spook investors, sending the benchmark FBM KLCI to its eighth day of losses yesterday.

Despite the thinner volume, the index fared well yesterday, trading in positive territory until it slumped in a matter of minutes ahead of market close, to finish the day 5.61 points or 0.33% down at 1,709.75 points. In comparison, the FBM Small Cap — featuring all the stocks listed on the Main Market, save for the top 100 counters — finished 61.98 points or 0.43% up.

A total of 1.85 billion shares worth RM2.21 billion crossed in a positive market breadth, with gainers outstripping decliners at 439 versus 356.

Analysts told The Edge Financial Daily that the sudden fall in the FBM KLCI was partly due to brewing uncertainty in trade relations between the US and China that led investors to “assume the worst by guesswork”.

“Risk-averse investors’ immediate concern is the potential impact on exporters to the US, as many exporters, especially those in the electrical and electronic space, are part of the supply chain contributing to China’s exports to the US,” UOB Kay Hian head of equity research Vincent Khoo said when contacted.

Notably, top decliners on the local bourse yesterday included strong technology names such as Vitrox Corp Bhd, whose share price fell 29 sen or 4.94% to RM5.58, and KESM Industries Bhd, down 22 sen or 1.29% to RM16.84. Globetronics Technology Bhd also fell five sen or 2.22% to RM2.20.

Khoo added that investor sentiment was possibly weak as a trade war could indirectly be inflationary, dampening demand and hence economic growth. Nevertheless, he maintains his view that the spat between Washington and Beijing would not amount to a full-fledged trade war.

“The US is not a manufacture-centric country, and without such [a] strength they will still need China,” he said.

“I don’t think the trade war will go into full swing, nor create a big disjoint to the manufacturing chain in Asia,” he explained, observing a more disconcerting trend in the liquidity contraction worldwide caused by a reverse quantitative easing and rising interest rates in the US.

Inter-Pacific Securities Sdn Bhd head of of research Pong Teng Siew said as the US-China trade tension deepens, it has also not entirely discounted that multinational corporations (MNCs) could begin planning a shift in production activities elsewhere, including to Malaysia.

“But generally, some form of upheaval in the short term, or slowdown in inputs to exports from Malaysia in the technology sector, can be expected, before any subsequent jiggling of the MNCs’ production platforms,” he cautioned.

Pong said while the trade spat is not expected to bear immediate results, uncertainties over the outcome — added with the impact of a quarter percentage point rate hike by the US Federal Reserve last Thursday — is bound to cause fund outflows in the short term, especially from emerging markets.

“These two overlapping developments act in the same direction, causing depressed valuations for equity as well as bond prices. But we are still very far from lows at this point,” he said.

For now, investors could look to stocks in the consumer or healthcare sector, according to Pong. Yesterday, top gainers were consumer stocks British American Tobacco (Malaysia) Bhd, Fraser & Neave Holdings Bhd, Apex Healthcare Bhd, and Hong Leong Industries Bhd.

The FBM KLCI mirrored the Dow Jones Industrial Average in the US as the latter fell 287.26 points or 1.15% on Tuesday, after US President Donald Trump threatened to impose another round of tariffs on US$200 billion (RM802 billion) of Chinese imports, if Beijing retaliated against his previous targeting of US$50 billion of imports, Reuters reported.

 

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