Trade war fears weigh on Malaysian equities

[MALAYSIA] Domestic equities retreated from yesterday's comeback gains as investors grasped the reality of massive US tariffs on Chinese goods, as well as the potential consequences of a trade war between the world's two largest economies.

The latest round of US tariffs, which includes a 25% levy on Chinese electric vehicles and a 50% duty on semiconductors, marks one of the most aggressive trade measures taken by the Biden administration. Analysts warn that these policies could disrupt global supply chains, particularly in sectors like automotive and technology, where Malaysia plays a key role as a manufacturing hub.

Following a strong loss in US markets overnight, the FBM KLCI plummeted 21.47 points to 1,441.66, highlighting the extraordinary volatility in global markets that persists in the aftermath of current trade developments.

Market observers note that the ripple effects of these tariffs extend beyond equities, with commodity-linked stocks also under pressure. Plantation and oil & gas counters, which had shown resilience earlier in the week, were among the laggards as investors weighed the potential impact of weaker Chinese demand on Malaysia’s export-driven sectors.

According to Rakuten Trade, the drop in all three major Wall Street indices indicates that traders recognize the 90-day respite in global tariffs is merely a temporary relief. "Though we expect bargain hunting activities to continue, prevailing market volatility may be a huge headwind for any meaningful uptrend," the firm wrote in its market analysis.

Meanwhile, regional markets mirrored the cautious sentiment, with Japan’s Nikkei 225 and Hong Kong’s Hang Seng Index both shedding over 1%. The uncertainty has also driven a flight to safety, pushing gold prices higher and strengthening the US dollar against emerging market currencies, including the ringgit.

Malacca Securities Research has repeated its proposal to acquire local glove players, citing a current US tariff difference of more than 100% between Chinese and Malaysian medical gloves. "We believe local glove players stand to benefit significantly as the price gap between the two markets widens," according to a note. Furthermore, it stated that lower raw material prices and a weaker ringgit might enhance glove demand and profitability.

Industry experts highlight that Malaysia’s glove manufacturers, already dominant in the global market, could see market share grow further if US buyers pivot away from Chinese suppliers. However, some caution that prolonged trade tensions could eventually dampen overall demand if global economic growth slows.

On the FBM KLCI, Kuala Lumpur Kepong slid 36 sen to RM19.04, CIMB dropped 29 sen to RM6.62, and AmBank shaved 25 sen to RM5.02. On the broader market, Aumas Resources, formerly known as Bahvest Resources, jumped 5.5 sen to 69 sen, on top traded volume of 6.58 million shares. Runner-ups included Avangaad down 0.5 sen to 28 sen and MYEG rising 0.5 sen to 84 sen.

On the FBM KLCI, Kuala Lumpur Kepong down 36 sen to RM19.04, CIMB fell 29 sen to RM6.62, and AmBank fell 25 sen to RM5.02. On the broader market, Aumas Resources, formerly known as Bahvest Resources, rose 5.5 sen to 69 sen on a high volume of 6.58 million shares. Runners-up were Avangaad, which fell 0.5 sen to 28 sen, and MYEG, which rose 0.5 sen to 84 sen.