Local stocks rise on trade truce, oil

Malaysia is riding on the positive news on the lack of escalation in trade war and rebound in oil prices


Malaysian financial markets rallied yesterday alongside regional counterparts as the US-China truce to temporarily stop imposing trade tariffs with further discussions planned to reach an agreement in 90 days spurred investor optimism.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) closed 19.86 points or 1.18% higher at 1,699.72.

In China, the Shanghai Composite Index closed 2.57% stronger at 2,654.80, while the Shenzhen Composite Index rose 3.34% to 7,938.47. Hong Kong’s Hang Seng Index leapt 2.55% to 27,182.04.

Rakuten Trade Sdn Bhd research VP Vincent Lau said most markets were positive on the lack of escalation in trade tensions, as well as Canada’s decision to cut oil production and the Saudi Arabia-Russia deal extension.

“It’s a global trend, this improves sentiment, and Malaysia is riding on that. The rebound in oil prices is also good for us,” he told The Malaysian Reserve.

Brent crude oil futures surged over 3% yesterday in London to US$61.70 (RM259.14) a barrel as investors reacted positively to global attempts to support oil prices, which have suffered their worst month in over 10 years.

Saudi Arabia and Russia have agreed to extend their deal to manage the oil market into 2019, while Alberta — Canada’s largest oil producing province — has ordered a temporary output halt, in an effort to bolster prices and close the unprecendented price gap that has seen Alberta crude selling for far less than world prices.

“The positive trajectory should continue in the immediate term on recovering sentiment and rebounding oil prices, although corporate results for the third quarter of 2018 (3Q18), which weren’t that great overall, could be a bit of a dampener,” Lau said, noting that about 30% to 40% of companies’ 3Q18 results were below expectations.

Lau’s outlook for the year-end is cautiously optimistic on revived investor appetite and expected window dressing, alongside public sector efforts to boost domestic markets.

“We believe there should be some window dressing as the year ends. While sentiment improves, the government has also kicked off its divestments in order to inject liquidity into the market. Oil prices are also unlikely to greatly sink further after the recent correction,” he said.

Investors are likely bargain hunting at this point with eyes on recently beaten-down stocks, Lau said, likening the process to “shopping for Christmas presents — looking out for good deals”.

FXTM global head of currency strategy and market research Jameel Ahmad said optimism over the temporary trade truce announced between the US and China has played a “massive role in lifting global investor risk appetite” at the beginning of the new trading week.

“Improved risk appetite is seen throughout a variety of different asset classes across the globe, including a stronger mood from stock markets and a number of emerging-market (EM) currencies benefitting from added investor appetite towards taking on further exposure towards risk in their portfolios,” he said in a note yesterday.

Nearly all Asia-Pacific currencies trended higher against the US dollar yesterday, including the ringgit, which rose to a three-week high yesterday. The local note closed at 4.1652 against the greenback.

Jameel said the South Korean won, which is often measured as the Asian currency proxy for investor appetite towards risk, was higher by over 0.85% (at time of writing), while the Chinese yuan was stronger by as much as 0.7%.

“This rally has filtered through to other regional EMs and assets classes. The ringgit has advanced close to 0.3% on both risk appetite and a weaker US dollar,” Jameel said.

He said the rally is proof that US-China trade tensions, which have been viewed as bilateral issues between the two, do indeed have “huge ramifications for global market optimism”.

“If there is further progression over trade tensions between the US and China, then this has the potential to create a heavy market rally before trading wraps up for 2018,” Jameel added.