by MARK RAO/ pic by MUHD AMIN NAHARUL
THE yuan dropped to an 11-year low against the US dollar yesterday as boiling tensions between the US and China dragged the ringgit to the lowest level in 22 months and punished global equity markets including Bursa Malaysia.
Malaysia’s benchmark equity index plunged to a near four-year low as Washington and Beijing continued to make good on their tariff threats, forcing investors to flee equity markets.
China and the US are Malaysia’s largest and third-largest export markets respectively and any slowdown in the world’s two biggest economies will drag the country’s economy.
Malaysia’s main Bursa index fell to a low of 1,590.51 points yesterday — the lowest since Sept 8, 2015’s closing price of 1,587.12. A sharp recovery at the end of trading lifted the index to close at 1,600.53, but still 8.8 points lower than last Friday’s close.
Ringgit dropped to RM4.2025 against the greenback after slumping to a low of RM4.2082 as investors dumped the local unit. The ringgit performance is closely linked to the yuan as both nations are large trading partners. The local unit already lost 1.6% of its value against the US dollar.
Last Friday, Beijing announced that it would impose new tariffs of between 5% and 10% on US$75 billion (RM315 billion) worth of US goods.
US President Donald Trump fired back with a threat that the slated tariffs for US$250 billion worth of Chinese imports on Oct 1 will rise from 25% to 30%, while tariffs planned for next month will increase to 15%.
The US markets plummeted last Friday with the Dow Jones Industrial Average down 623.34 points to close at 25,628.90, while Nasdaq was down 239.62 points at 7,751.77 and S&P 500 down 75.84 points at 2,847.11.
Asian markets tracked the performance of Wall Street as Japan’s Nikkei 225 and South Korea’s Kospi Index traded lower yesterday, while the respective stock exchanges for the Asean-5 (comprising Malaysia, Singapore, Thailand, Indonesia and the Philippines) were in the red for the day.
“We can expect pronounced volatility for the market over the short to medium term, resulting in sharp movements for 2019 up to the middle of 2020 at least,” a local equity analyst told The Malaysian Reserve (TMR).
“There is a host of external factors that will contribute to the volatility including the Brexit deal, US-China trade and the political tensions in Hong Kong. But domestically, there is nothing to be unduly worried about at the moment,” the analyst said.
The analyst said a “wildcard” to provide support for Malaysian equities is corporate earnings, but noted that the results coming in thus far from leading market constituents have largely been disappointing or fallen below forecasts.
Oanda Corp senior market analyst for Asia Pacific Jeffrey Halley said regional currencies are set to take a battering against the US dollar as their export-driven economies have a high exposure to both China and global trade.
The ringgit is among the currencies at risk due to its high beta to the Chinese yuan which has been depreciating against the greenback, he said in a note.
FXTM global head of currency strategy and market research Jameel Ahmad said the yuan is expected to fall to “new milestone lows” in the coming days as US-China trade relations are set to worsen before any reconciliation is reached.
“The yuan falling to further milestone lows will drop emerging markets across Asia lower with it, meaning that the likes of the ringgit, won, rupee and rupiah should also face the brunt of investor scepticism towards taking on risk in their portfolios right now,” he said in a research note.
Rakuten Trade Sdn Bhd head of research Kenny Yee said the FTSE Bursa Malaysia KLCI could dip to as low as 1,565 points this year based on internal estimates, while its recent trading range is within the 1,580 to 1,620 level, as corporate earnings fail to lift market sentiment.
“I am afraid the ongoing results season will not have any impact on the sentiment over the market,” he told TMR.
“Moreover, we are expecting another nonchalant performance from corporate Malaysia and, therefore, are not expecting any upside surprises,” Yee said.