Cautious sentiment likely to prevail

The Star

07-05-2025

PETALING JAYA: A fluid macro environment and ongoing uncertainty over US trade tariffs negotiations will likely keep investors cautious until further clarity on such issues allow for better informed decisions.
That is partly why analysts believe the 150-point rebound momentum from the April 9 low of 1,388 points the local equity market had made may be exhausted.
As such, the FBM KLCI could experience range-bound trading in the short term until further details on the tariffs are made known.
'The FBM KLCI is expected to remain range-bound amid a fluid macro environment and ongoing uncertainty over US trade tariffs. While optimism over easing trade tensions and potential deals has supported the recent market rebound, no concrete developments have emerged from China.
'The prolonged delay continues to cloud market sentiment, keeping investors cautious and hesitant to take decisive positions,' Nixon Wong, chief investment officer at Tradeview Capital, told StarBiz.
The 90-day reprieve to negotiate a tariff deal with the White House is set to be a catalyst for market trajectory and investors will keenly eye the approaching deadline in July.
According to Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Aziz, the United States' four key demands on Malaysia are to address the trade imbalance, non-tariff barriers, technology safeguards and investment alignment.
Should the 90-day period end with a proper deal being negotiated between Malaysia and the United States, it might form a catalyst to push the local market higher as investors prefer certainties.
'We believe investors have already accepted the fact that the trade environment ahead will be exposed in the elevated tariff (10% base rate at this juncture), hence investors are eager to have certainties about how many percent and what products are being excluded.
'Having said that, the short to mid-term market movement is being impacted by the outcome of negotiations and it is extremely tough to gauge the movement ahead,' said Kevin Khaw, assistant research manager at iFAST Capital.
While it's still early days, optimists like Maybank Investment Bank are keeping their year-end target of 1,700 points for the index although in the near term, it expects the benchmark could hover around the 1,560-point levels.
The foreign exchange (forex) market is where the negotiations between some countries and Washington are being played out live.
The Taiwanese dollar and Japanese yen have appreciated against the greenback since talks began which has also seen other Asian currencies like the ringgit to rise to seven-month highs against the US dollar at RM4.22 yesterday.
Would this see money inflows after the RM12.7bil in foreign net outflows year-to-date? Maybank noted the ringgit's strengthening against the US dollar has a strong positive correlation with the FBM KLCI and a stronger ringgit tends to add strength to the equities market.
'As such, we believe investors should warm up to Malaysian equities with more clarity on tariff discussions, and not forgetting Malaysia's numerous domestic policy initiatives.
'Positively, we note that equity foreign net selling has moderated in April and has been well absorbed by domestic institutions,' the bank said in a recent Malaysia strategy report.
Khaw said the recent movement in the forex market is also driven by investors' expectation of a de-escalation of US-China trade tensions, followed by recent softening tones from both parties.
He added despite the lower US dollar, from a ringgit perspective, it is still relatively expensive to import US goods, hence the conspiracy theory of the White House 'purposely' wanting a cheaper dollar to drive exports is untrue.
Khaw believes the talk of a slowing global economic growth has led to a market consensus of one rate cut by Bank Negara, which has partly contributed to the recent rally on the local market.
'Investors are pricing in the possibility of recent ringgit strength alongside a possible 'insurance cut' from looming economic uncertainties, not to mention the upcoming subsidies rationalisation impact to consumers,' he said.
Other analysts said the tariffs have just triggered a rebalancing in the US dollar, which has had a good run over the past decade with investors long in US assets like equities.
The talk of de-dollarisation hence may be misplaced and the recent move in the greenback is more to do with rebalancing of asset allocation with global investors trimming their US dollar positions in US equities and the US treasuries as well.
The weakness also coincided with the massive fiscal stimulus from Europe.
Tradeview's Wong said any rate cuts by the Federal Reserve and fiscal support could weaken the US dollar, potentially driving capital flows into emerging markets like Malaysia—supporting the longer-term investment thesis. But even this may be quite challenging.
'The Nasdaq, being tech-centric, may see a stronger recovery following a better-than-expected results season. However, mixed corporate guidance and persistent trade uncertainties continue to weigh on investor sentiment, limiting fund inflows for now,' he said.
Hence, Wong continues to favour quality, domestically oriented companies with strong fundamentals and attractive yields — particularly real estate investment trusts, financials and selected consumer staples.
'While we prefer clearer visibility before making significant growth allocations, current market levels appear attractive for selective bottom fishing, as much of the negative sentiment seems to be priced in.
'That said, investors should be prepared to endure heightened volatility in the near term, as trade-related news flow is likely to remain active and inconclusive until closer to the end of the 90-day period. Patience and selectivity will be key during this phase of uncertainty,' he warned.
With the Trump administration stating it is close to making some deals with some countries on the tariffs issue and the softening stance on auto tariffs all point to the likelihood of another year of two halves for Bursa Malaysia in 2025.