FBM KLCI drops as Trump reaffirms tariffs on Canada and Mexico

[MALAYSIA] On February 25, 2025, the global markets experienced volatility as US President Donald Trump reaffirmed his administration’s decision to maintain tariffs on Canada and Mexico. This move sent shockwaves through international trade and caused notable fluctuations in stock markets worldwide, including in Malaysia. The Malaysian stock market, as measured by the FBM KLCI (Financial and Business Market Kuala Lumpur Composite Index), slid into the red zone during early trading. This article explores how the US President's trade policy reaffirmation affected the FBM KLCI, the broader Malaysian market, and investor sentiment in Southeast Asia.

President Trump's decision to uphold tariffs on Canada and Mexico has far-reaching consequences for global trade, particularly for countries closely tied to the North American Free Trade Agreement (NAFTA). Originally imposed under national security concerns, these tariffs have been a source of tension and controversy. While the Trump administration views these tariffs as a necessary tool to protect US industries, trade partners like Canada and Mexico have expressed frustration with the ongoing imposition.

Trump's decision, reiterated on February 25, created uncertainty among global markets, leading investors to reassess the broader economic impact of such trade policies. Countries like Malaysia, which are deeply embedded in international trade and maintain significant economic ties with both the US and other trading partners, experienced immediate repercussions. As global investors digested the news, the FBM KLCI saw an early decline, mirroring a broader trend in international markets.

FBM KLCI Decline: A Snapshot of the Day

The FBM KLCI opened lower on February 25, 2025, losing 1.52 points to settle at 1,582.73 during early trading hours. Despite the initial dip, the benchmark index remained relatively stable, indicating a consolidated market amid global uncertainties. Analysts were quick to point out that the Malaysian stock market had been facing downward pressure, primarily due to global concerns regarding trade policies and the upcoming fourth-quarter earnings season.

The market's slide came after a relatively stable period, prompting analysts to speculate about the direction of the market in the coming weeks. According to research from local investment firms, the impact of Trump’s tariffs on the Malaysian market was likely to be short-lived, with analysts urging investors to look for opportunities to buy into stocks that may be oversold during the initial phase of the sell-off.

Rakuten Trade’s Take on the Situation

Rakuten Trade, a leading Malaysian investment firm, shared its insights on the FBM KLCI's performance following Trump’s tariff announcement. Rakuten's analysis suggested that despite the early slump, this could present an excellent opportunity for investors to acquire undervalued stocks. "We see this as an excellent opportunity to mop up shares as foreign funds will certainly make a comeback sooner than later," said the firm in its research note.

Rakuten further explained that the short-term fluctuations, though unsettling, provided a potential entry point for investors looking to buy into stocks with strong fundamentals. The firm emphasized that Malaysia's strong economic fundamentals, combined with its strategic position in global trade, would help cushion the market against the global volatility generated by Trump’s tariffs.

Sectoral Shifts and Investor Sentiment

While the FBM KLCI faced early declines, sector-specific opportunities emerged for investors looking to navigate the turbulence. Analysts from Malacca Securities Research recommended that investors focus on sectors with strong growth prospects. For instance, the construction and retail sectors were highlighted as being oversold, but with robust long-term growth potential.

Malacca Securities pointed to specific stocks like 99 Speed Mart as examples of companies in the retail sector that had demonstrated consistent earnings and were expected to perform well over the long term. Despite the broader market's decline, the firm suggested that bargain-hunting in sectors like construction and retail could provide investors with stable returns.

Healthcare and technology stocks were also flagged as potential opportunities for long-term investors. "Microsoft’s core strategy remains intact for its data centre strategy, and their 10-year outlook for cloud and AI" was highlighted as a stabilizing factor for technology investments. Stocks of healthcare firms such as KPJ were also noted for their steady earnings and could be seen as reliable investments, even during times of market uncertainty.

Malaysia’s Strategic Position Amid Global Trade Tensions

Malaysia, like many other emerging market economies, remains sensitive to global trade dynamics, particularly in times of heightened geopolitical tensions. The country’s strong trade relations with both the US and the ASEAN region place it at the crossroads of significant global economic developments.

For Malaysia, which has already been adjusting to the shifting trade policies under the Trump administration, the reaffirmation of tariffs presents a new challenge. However, Malaysia's diversified economy, with strong pillars in manufacturing, exports, and commodities, offers a degree of resilience to these external shocks. While Trump’s tariff policies may cause short-term volatility, Malaysia’s positioning within ASEAN and the broader global supply chain offers considerable advantages.

The nation's economic links to major global players like China, Japan, and the US help mitigate the adverse effects of trade disruptions. Analysts also believe that Malaysia's export-oriented sectors, particularly electronics and commodities like palm oil and rubber, will continue to serve as key drivers of economic growth. As such, despite global market fluctuations caused by the Trump tariffs, Malaysia's economy is expected to remain on solid footing in the long term.

Market Movers and Laggards on February 25

During the early hours of trading on February 25, the FBM KLCI saw a range of performances among individual stocks. Stocks that are heavily influenced by global economic trends and trade policies, including those in the banking, consumer goods, and energy sectors, experienced pressure. For instance, Ambank saw a decline of 10 sen, bringing its price to RM5.66, while KPJ Health shed eight sen, reaching RM2.45. Similarly, technology stocks like MPI and Kuala Lumpur Kepong also saw declines, reflecting broader market concerns.

However, not all stocks were negatively affected by the external shock. Some stocks within the construction, retail, and healthcare sectors experienced modest gains. Ingenieur's stock rose by 0.5 sen to 4.5 sen, while Southern Cable gained two sen to settle at RM1.15. These stocks were buoyed by the belief that specific sectors would benefit from long-term growth prospects, regardless of short-term market fluctuations.

What Lies Ahead for the FBM KLCI?

While the FBM KLCI slid in the immediate aftermath of President Trump's tariff reaffirmation, the overall market sentiment remained cautious but optimistic. Analysts suggested that the initial dip could be viewed as a temporary adjustment, with the potential for recovery as foreign investors return to the Malaysian market in the coming weeks.

Given Malaysia's strong economic fundamentals, analysts believe that the FBM KLCI could bounce back as market participants recalibrate their portfolios in response to broader market conditions. The near-term outlook may still be clouded by the uncertainty surrounding global trade, but with a diversified economy, Malaysia's markets are likely to remain resilient.

The key for investors will be to focus on sectors with strong growth potential and to adopt a long-term view. As geopolitical risks evolve and trade relationships continue to shift, Malaysia's market will continue to present opportunities for those who are willing to navigate short-term volatility.

The reaffirmation of tariffs on Canada and Mexico by President Trump has stirred market reactions across the globe, including in Malaysia, where the FBM KLCI slid at the open on February 25, 2025. While the immediate impact of these trade tensions caused uncertainty, analysts remain optimistic about Malaysia's long-term prospects. Sectors like retail, construction, technology, and healthcare are seen as key areas for investment in the face of global volatility.

As global markets continue to adapt to shifting trade policies and economic dynamics, the FBM KLCI's response to these developments will provide valuable insights into how Malaysia’s economy will fare in the coming months. For investors, the message is clear: while short-term market fluctuations are inevitable, the long-term potential for growth remains intact, especially for those who strategically position themselves in key sectors.