FBM KLCI hits 29-month low on US-China trade tensions

The outsized reaction in Asia is stemming from the view that Asia markets are more vulnerable, says analyst


Fears of escalation in the Sino-US trade tensions saw investors adopting a risk-off approach amid heightened volatility and thus sending global markets into sell-off mode with the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) hitting a 29-month low.

US President Donald Trump’s threat to raise tariffs on Chinese imports reignited fears the trade conflict between the world’s two largest economies will have a negative impact on global economic health, including Malaysia’s economic fortunes.

The broad-based sell-off yesterday saw the FBM KLCI falling 15.02 points or 0.92% to 1,618, the lowest level in the past 2½ years.

Losers outpaced gainers by 610 to 246, while 333 counters were unchanged, with 2.14 billion shares traded valued at RM2.02 billion.

Regional benchmarks like Tokyo, Singapore, Hong Kong and Shanghai all closed sharply lower in the trading day.

SPI Asset Management managing partner Stephen Innes stated that the outsized reaction in Asia is stemming from the view that Asia markets are more vulnerable.

“Most certainly, slower export growth combined with capital outflows will put heavy pressure on regional capital markets as the stronger US dollar would then move like a wrecking ball across Asia.

“While the headlines might make for a mirthless read, but compared to other market capitulations and the worst-case scenario of trade talks completely dissolving on rancorous terms, by the historical meltdown standards, equity markets continue to price in the limited risk of the US-China trade talks breaking down,” he said in a release yesterday.

Innes also opines the prospect of the US raising tariffs on US$200 billion (RM830 billion) worth of goods will play negatively on the ringgit as the margin key export sectors into China will continue to struggle.

The risk factors to growth has led Bank Negara Malaysia to cut its Overnight Policy Rate by 25 basis points to 3% on Tuesday, but this action has so far failed to support the local equity market.

All eyes now await in anticipation of the outcome of the latest Chinese and US trade negotiations to stave off a fresh round of tariffs hikes.

Affin Hwang Capital Research anticipates that the FBM KLCI will consolidate sideways with a downward bias.

“The index has been stalling at the 20-day EMA (exponential moving average) for about two weeks now. Prices are congesting sideways, alternating between gains and losses for the past week.

“Looking at price action, bias now turns towards the downside as the daily candles are not making new highs,” it said in a research report yesterday.