US-China tariff cuts to lift Malaysian equities, KLCI target held at 1,657
KUALA LUMPUR: The temporary tariff reduction agreement between the US and China is seen as a positive development for the equity market, as it lowers the likelihood of a US or global recession and could encourage greater net foreign investment in equities.
Under the deal, the US will scale back its additional tariffs on Chinese goods from 145 per cent to 30 per cent, while China will reduce its tariffs on US imports from 125 per cent to 10 per cent.
According to CIMB Securities, the banking sector stands to gain from this trend due to its strong liquidity position and its close ties to the domestic economic landscape.
"The plantation sector may also benefit from stronger global edible oil demand and higher crude oil prices if the broader economy improves," it said.
The firm noted that in the technology sector, easing trade tensions may boost global demand for semiconductors, with Malaysian tech companies expected to maintain their competitive advantage, as US tariffs on Chinese products remain significantly higher than those on Malaysian exports.
"We believe Malaysian glove manufacturers continue to enjoy a cost advantage, as US tariffs on Malaysian imports remain at 10 per cent, compared with the reduced 30 per cent tariff imposed on Chinese imports," it said.
CIMB Securities has kept its target for the Kuala Lumpur Composite Index (KLCI) at 1,657 points and plans to reassess this forecast after the first quarter of 2025 (1Q25) earnings season.
"We continue to prefer domestic-oriented companies with stable dividend yields, particularly in the banking, telecommunications, utilities, construction, and healthcare sectors, to provide shelter from tariff-related headwinds," the firm added.
However, CIMB Securities cautioned that uncertainties remain regarding the nature of the agreement that will result after the 90-day period and whether the current easing of tensions will be maintained.
"Additionally, US tariffs on China, although reduced to 30 per cent, remain significantly higher than the 10 per cent tariff currently imposed on other trading partners," CIMB Securities added.
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