Tariff negotiations to drive Bursa's direction

The Star

23-04-2025

PETALING JAYA: Bursa Malaysia's recovery hinges upon a positive outcome from Malaysia's tariff negotiations with Washington.
Tradeview Capital chief executive officer and founder Ng Zhu Hann said all eyes are still on the outcome of ongoing negotiations between the United States and its trading partners during the current 90-day pause on country-specific tariffs – excluding China – enacted by President DonaldTrump on April 10.
The FBM KLCI is down by 9% year-to-date. It hit a session low of 1,386.63 points on April 9 before closing at 1400.59 points, marking a 21-month low since July 2023 after Trump announced reciprocal tariff rates on US trading partners.
The index has since rebounded, ending at 1486.25 points yesterday, after briefly testing the 1,500 mark during intraday trade on Monday. 'It (1386.63 points) was a very low level and I would say this is a strong support. I do not expect the index to revisit this level in the short term unless the tariff rhetoric from Trump escalates again.
'However, if the ongoing trade negotiations with the United States show no meaningful progress after the 90-day period, the FBM KLCI could potentially trend lower,' he told StarBiz.
Meanwhile, foreign investors continued their net-sell streak for the 26th consecutive week last week, although outflows have moderated significantly.
Net outflows tapered by 83.3% week-on-week to RM330mil from a net outflow of RM1.97bil in the previous week. This brings foreign investors' year-to-date net-sell value to RM12.7bil.
Local institutions extended their support, cushioning foreign outflows, recording their 26th straight week of net buying with inflows of RM356.2mil.
Ng said the easing of foreign fund outflows is not so much because anything has changed predominantly, but it is due to the selling of US assets including bonds and equities by global funds, driven by the unpredictability of Trump's policies.
'A majority of these fund flows have been directed to Europe, while a smaller portion has made its way to Asian markets.
'Nevertheless, foreign funds have not returned to Asia in a significant way. Investors remain cautious given that a number of countries in Asia are net exporters and run trade surpluses with the United States, making them vulnerable to trade tensions.
'Even if foreign investors are looking to return to Asian markets, they are only positioning a small bit, and this includes Malaysia,' he said.
Hence, although the foreign sell-off has eased, it is largely because the magnitude of outflows in the first quarter was already quite substantial. At this juncture, Ng added it remains unclear whether selling pressures will persist.
'Unfortunately, aside from the fact that our market is undervalued, I do not see any big wave of buying. This suggests that the key catalyst for renewed foreign interest would be a resolution to the ongoing tariff negotiations,' Ng said.
Last week, Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz said government officials are scheduled to meet with the US Trade Representative and other officials on April 24 for talks about the US tariffs imposed on the country.
Rakuten Trade head of equity sales Vincent Lau said the recent visit by Chinese President Xi Jinping also provided some support to the FBM KLCI, which helped push the market to test the 1,500 level on Monday, although it did not close above that mark.
Lau said the FBM KLCI had found its bottom when it hit a low of 1,386.63 points earlier this month. He opined that the index is not expected to see new lows, unless the trade tariff war between the United States and China escalates further.
'However, this will not likely happen as both the United States and China have indicated that they have reached the peak of their tariff hikes against each other.
'There is not much negative news for Malaysia at the moment, so the FBM KLCI should remain stable or trade sideways.
'The index is unlikely to see another sharp drop unless new catalysts emerge, such as major countries like Japan or India striking a deal with the United States in the ongoing negotiations,' he said.
Given the current backdrop, Ng expects there to be weakness in some of the export plays like technology in the upcoming first quarter's earnings season, which is unavoidable. However, he noted that investors should be less worried because the weakness has already been factored in.
'Meanwhile, some positive surprises are expected from local consumer names. Investors can focus on import-oriented and domestically driven names, while avoiding export-oriented and technology players.
'Domestic consumer-related industries are more insulated and defensive. They are also less exposed to the impacts of tariffs or the ongoing trade war,' he said.
Lau, however, projects that corporate results would mostly be flattish with no particular surprises on the upside or downside.
Rather than focusing on any specific themes, Lau added that selected initial public offering (IPO) stocks that have dipped below their listing prices could present some opportunities.
'As we know, the IPO market is currently quite depressed, with many recent listings trading below their IPO prices. It may be worth looking into some of these names that are now undervalued,' he said
This temporary suspension, initiated by Trump after more than 75 countries expressed interest in negotiating, is widely seen as a critical window for countries to reach new trade agreements with the United States.
The 90-day period is expected to be a pivotal phase, as officials and markets closely monitor whether substantive progress can be achieved before the pause expires.
Current market pricing implies that the Federal Reserve (Fed) will begin to cut short-term interest rates at the mid-June monetary policy meeting.
Futures imply that by the end of the year, the central bank will have reduced its target for the federal funds rate target by 75 basis points (bps) to 100 bps.
Last week, Fed chair Jerome Powell pushed back on these expectations. He noted that because the Trump's administration's tariff policies will pressure prices higher and depress growth, it will likely push the Fed away from its objectives for full employment and stable inflation.
'I do think we'll be moving away from these goals, probably for the balance of this year,' he said.
The Fed will be patient for four reasons. First, the economic outlook is unusually cloudy. There is no precedent for the rapid increase in US tariffs that have been far larger than Fed officials anticipated.
Knowing how to respond to an unprecedented change in trade policies is difficult on its own but even more so when those policies are in flux.
Moreover, the imposition of higher tariffs may temporarily boost economic growth as households and businesses front-load their purchases in anticipation of higher prices later.
The 5.3% surge in motor vehicle and parts sales in March was the biggest in two years and is, perhaps, the most compelling example.