KUALA LUMPUR: Malaysia’s stock market reacted positively to news of a temporary truce in the trade war between the US and China over the weekend, with the FBM KLCI closing up 1.2% to 1,699.72 points yesterday.

However, the benchmark index lagged the gains seen by its regional peers, as Hong Kong’s Hang Seng Index closed up 2.5%, Shanghai Stock Exchange added 2.6% while Singapore’s Straits Times Index gained 2.3%.

TA Securities chief investment officer Choo Swee Kee said a reason why the Malaysian market did not move as much was because of the perception that it is low beta, or less volatile, compared with its regional peers.

“Also we have less room to recover, as the KLCI did not drop as much as other markets,” he told The Edge Financial Daily.

Inter-Pacific Securities head of research Pong Teng Siew opined that investors were probably waiting to take cue from the performance of the US markets.

“We have always been a bit slower in regaining confidence, give it a while because we would need a couple of days of markets elsewhere climbing and a firmer close from US markets tonight (yesterday) before we follow suit.

“Probably there are some worries about a whiplash, whereby you jump in and follow suit only to be brought down again. People who jump on this kind of trades are usually retail investors,” he said.

“Retail investors have probably decided to be more patient, learning from past lessons whenever there has been market moving news, like what we had over the weekend, only to be disappointed when markets turned and fell again,” Pong added.

Bloomberg reported on Sunday that both US President Donald Trump and Chinese President Xi Jinping had agreed to keep trade war from escalating with a promise to halt the imposition of new tariffs for 90 days as the world’s two largest economies negotiate a lasting agreement.

In a statement, the US government said Trump has agreed to leave the tariffs on US$200 billion (RM834 billion) worth of products at the 10% rate, and not raise them to 25% on Jan 1. China, meanwhile, agrees to purchase a “very substantial” amount of agricultural, energy, industrial and other products from the US to reduce the trade imbalance between the two countries.

The statement also mentioned that Xi is open to approving the previously unapproved Qualcomm-NXP deal should it again be presented to him.

Technology counters were among the top gainers on Bursa Malaysia yesterday, with KESM Industries Bhd ended the day up 7.47% to RM8.63, Malaysian Pacific Industries Bhd up 9.2% to RM10.92 and Inari Amertron Bhd up 13.94% to RM1.88.

UOB Malaysia senior economist Julia Goh said the temporary truce is an encouraging development for financial markets.

“Financial markets are expected to react with relief and shift into risk on mode in the coming days [and] weeks. However, [our] initial take is that there appears to be differences in the outcome of the meeting based on official statements from the White House and the Chinese government.

“For example, the Chinese statements did not mention the 90-day negotiation period, as well as the type of products China would start to import from the US.

“These could suggest there is a wide gulf between the two sides, which could mean that the next 90 days could still be fraught with difficulties and uncertainties for the financial markets and global economy,” she said.

“While we expect it will be a long-drawn negotiation process well into 2019, there is still a significant risk that both sides could fail to bridge their differences and the trade tension escalates further. For instance, it is very unlikely that China would make major concessions on their Made in China 2025 blueprint [which] is a key point of contention for the US, given China’s aspirations and capabilities,” Goh added.

AmBank Group Research chief economist and head Dr Anthony Dass opined that the current temporary halt is not a suspension of the trade war, but a suspension of its escalation.

“The big question remains about the readiness by China to allow international access to their huge market to a level that will please US administration and hence prompt the US to completely halt the trade war,” he said.

Dass said any easing of tensions on trade could ease gains in the US dollar and boost riskier assets including emerging-market currencies and stocks.

“[However,] we feel that the US and China are trying to fix a long-term problem that cannot be solved in the near term. We hope this meeting, under the current situation, will achieve an important and positive effect on bilateral relations.

“As long as both parties adopt an attitude of mutual respect and equality, constructive dialogue will be able to reduce their differences,” he added.