By MARK RAO / Pic By BLOOMBERG
Equity markets across Asia tumbled as the world capital market scurried for cover after Beijing’s tit-for-tat retaliation against the US tariff hikes on China products.
China’s announcement to impose a 25% tariff on US$50 billion (RM193.5 billion) worth of US goods, affecting 106 products including soybeans, airplanes and cars, sent shockwaves across the region’s equity markets.
Malaysia’s main index plummeted to its lowest point since Jan 4 this year, dropping 34.84 points to close at 1,815.94 yesterday, erasing billions of market capitalisation after news of the escalating tension between the US and China.
Investors reacted negatively to Beijing’s announcement, disposing of shares towards the tail end of trading. The main index dropped to a day-low of 1,811.56 at 4.30pm yesterday in just 15 minutes.
Asian markets also shuddered with Hong Kong’s Hang Seng falling 74.11 points to 4,100.17, Singapore’s Straits Times Index down by 72.45 points at 3,339.70 and South Korea’s Kospi Index lower by 34.37 points at 2,408.06.
Beijing’s action was expected after the Donald Trump-led US administration imposed a 25% levy on US$50 billion worth of Chinese imports across 1,300 categories, in what is becoming a trade confrontation between the world’s two largest economies.
CIMB Investment Bank Bhd head of Malaysia research and regional head of agribusiness research Ivy Ng said the news related to the Washington-Beijing trade barbs would determine the direction of the local bourse in the near term.
“The sell-off is a response to concerns over trade developments between the US and China, with both countries announcing tariffs recently. This has created a lot of uncertainty relating to trades,” she told The Malaysian Reserve (TMR).
“Investors are reacting to these concerns and waiting to see if the growing trade war will escalate or be resolved,” she said.
Ng said the bulk of the investors are now on profit- taking activities, trimming down their exposures to Malaysian equities and other risk-based assets, and will return to the market once certainty is in the market.
However, there is little clarity at the moment on just how far both Washington and Beijing would take their war, she said.
Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said the trade war could prolong as both countries have the economic capability to carry out “targeted retaliation”.
“Unlike the trade war between Japan and the US in the 1980s, where the former could not retaliate due to the lack of leverage, China’s economy is about half the size of the US, and the trade balance between the two countries is in favour of China,” Pong told TMR.
As a worst-case scenario, he said a trade war between the US and China will result in a global recession by year-end or early 2019, as the majority of economies are highly trade-dependent.
The expectation that the Parliament will be dissolved as early as tomorrow, ahead of the 14th General Election (GE14), has also added to the anxiety.
Prime Minister Datuk Seri Mohd Najib Razak is expected to launch Barisan Nasional’s manifesto this Saturday.
Ng said this has prompted foreign investors to sell or find reasons to sell due to concerns over the outcome of the GE14.
However, Pong said GEs have generally had a positive impact on stock prices, though this is expected to be muted due to the growing uncertainty surrounding the direction of global trade.
“Assuming that the ruling coalition remains in power, the impact of the GE14 is expected to be relatively neutered as investors will be reluctant to buy Malaysian equities against a backdrop of global trade uncertainties.”