Foreign inflows may cushion impact of US-Beijing spat on local market for now

Against its regional peers, Malaysia is the only country to attract inflows last week


Foreign inflows into the the local stock market in the near term could cushion the impact of the escalating trade spat between the US and China.

In keeping to its threats, Washington slapped a 10% tariff hike on an additional US$200 billion (RM828 billion) of Chinese imports. The measures, which will take effect on Sept 24 this year, will see the levy rise to 25% starting Jan 1 next year.

Beijing, the world’s second-largest economy, had threatened “retaliatory actions” over the US’ latest move.

The tariffs will apply to almost 6,000 items, marking the biggest round of US tariffs so far.

Handbags, rice and textiles will be included, but some items expected to be targeted such as smart watches and high chairs have been excluded.

China had previously raised tariffs on US$60 billion of imports from the US.

Markets in India, Taiwan, Singapore, the Philippines, Australia and Malaysia tumbled as the region’s equity markets shivered over a possibility of a full-blown trade war between the two biggest economies.

But China’s Shanghai Stock Exchange Composite Index, which fell to the lowest level since 2014, rebounded yesterday. The local bourse shed 10.82 to close at 1,792.

“Negative sentiment from Wall Street and the trade concerns may spill over towards stocks on the local front and the FTSE Bursa Malaysia KLCI may continue to trade within the range of 1,777 and 1,828.

“Nevertheless, the positive inflows over the past two trading days may cushion the downside risk over the near term,” Hong Leong Investment Bank Bhd head of retail research Loui Low Ley Yee said.

Foreign investors have started to return to the local market based on the transactions of the three-day trading last week.

MIDF Research said based on initial data which excluded off-market deals, international funds snapped up RM2.6 million of local stocks last week.

Foreign funds heavily withdrew from the local stock market last Wednesday at RM349.8 million net as markets reopened after the long weekend, dragging the local bourse to 1,785 points, the lowest close in 18 trading days.

“We note that last Wednesday’s sell-off was in conformity with other peers as investors were jittered by China seeking permission from the World Trade Organisation to impose trade sanctions on the US,” MIDF Research analyst Adam M Rahim said.

Against its regional peers, Malaysia is the only country to attract inflows last week.

Rakuten Trade Sdn Bhd VP of research Vincent Lau said despite the cautious sentiment, Malaysia’s market performance will be bolstered by the recent foreign inflows.

“The last two days (last Thursday and Friday), foreign net inflows totalled RM352.4 million. That is the elevating factor.

“As of now, our market is somehow pricing in the US$200 billion and is waiting for China’s response,” he told The Malaysian Reserve.

Lau believes that Finance Minister Lim Guan Eng’s affirmation on the country’s strong fundamentals despite all the headwinds have boosted investors’ confidence.

Nonetheless, he said the five-day selling streak on Bursa Malaysia Bhd was snapped last Thursday as offshore funds bought RM174.4 million net of local equities.

As at last Friday, the year-to-date outflows from the local stock market stood at RM9.25 billion, approximately offsetting slightly more than 90% of the total foreign net inflows seen in 2017.

“Notwithstanding this, Malaysia still retains its position as the nation with the second-lowest foreign outflows among the four Asean markets we monitor,” Adam added.

Despite the short week, the weekly average daily traded value (ADTV) among retail investors, local institutions and foreign investors in Bursa Malaysia increased.

The ADTV of foreign investors rose the most during the week by 41.6% to RM1.6 billion, marking its 10th consecutive week of being above RM1 billion.