More trade progress needed to spur stocks


MALAYSIAN equities were largely unfazed yesterday, rising only on last-minute buying as investors had likely already priced in the signing of a “Phase 1” trade deal between the US and China.

Following the deal signing, which took place in Washington on Wednesday morning, the FTSE Bursa Malaysia KLCI (FBM KLCI) closed 0.17% or 2.74 points higher at 1,587.88 yesterday, after lagging below its previous close of 1,585.14 for most of the day.

Most Asian markets rose, while the Shanghai Composite Index, the Taiwan Stock Exchange Weighted Index and the JPX-Nikkei Index 400 fell.

The Euro Stoxx 50 was down 0.1% as at press time, while US markets continued to rally.

AxiTrader Ltd Asia Pacific market strategist Stephen Innes said the tactical bias remains intact and more visible progress is needed to spur investors, given the prolonged state of the trade war.

“We need to see more progress either on ‘Phase’ 2 of the trade deal or on the data,” Innes told The Malaysian Reserve (TMR).

On the positive side, the Phase 1 deal inks China’s commitment to increase its purchases, although there remain concerns on how this will work out.

“And we have a credible mechanism for resolving disputes, so it should be sufficient for the markets to refocus on other things. After all, market expectations for a Phase 2 deal are negligible.

“The main benefit of the deal is that the US-China frictions are unlikely to worsen in the coming months, so we have reached a peak tariff of sorts, and this will allow traders to return focus on other things,” Innes added.

However, the Phase 1 signing brings several issues for global trade, as existing tariffs on the majority of Chinese goods remain in place.

“More importantly, if the overly ambitious purchase targets are reached, it suggests other countries will lose out as Chinese demand for their products rotates towards the US.

“But the deal is not bad for risk and should boost global growth,” Innes noted, adding that 2020 is an election year, during which US policy will most likely turn positive.

The Phase 1 deal signed by US President Donald Trump and Chinese Vice Premier Liu He will see the rollback of some tariffs and China boosting purchases of US goods and services.

Hong Leong Investment Bank Bhd in a traders brief yesterday said the positive sentiment is expected to spillover into local stocks.

“However, with the anticipation of a softer earnings season in February, coupled with local political noise which may contribute to softer-than-expected foreign inflows moving forward, the FBM KLCI’s upside could be capped in the near term along 1,600-1,620,” it added.

Pockets of opportunities remain in domestic equities, with small- and mid-caps, as well as tech-related stocks continuing to show gains, Rakuten Trade Sdn Bhd VP of research Vincent Lau told TMR.

Meanwhile, the rally in Asian currencies is slowing as select investors rake in profits on US dollar/emerging market downside positions following the trade deal signing.

“I also think the proximity to the upcoming Chinese New Year is causing traders to pare back risk as we know yuan liquidity will be sparse.

“For the ringgit, I think we’ve hit a tentative base level against the greenback based on the current level of tariffs. The market will now focus on China data, which has been very resilient,” Innes said.

If data continues to be positive, the yuan against the US dollar could veer towards 6.85 and the ringgit could break RM4.05 against the greenback, he added.