KLCI tumbles 1.9% on trade war fears

PETALING JAYA: China’s retaliatory measures against US tariff move led to a heavy sell-off in the local stock market just an hour before the closing bell today, plunging as much as 39.22 points or 2.12% to 1,811.56 points, wiping off RM48 billion market capitalisation.
However, the KLIC managed to stay firm above the 1,800-point level, closing down 34.84 points or 1.88% to 1,815.94 points. Year-to-date, its gain narrowed to 1%.
Losers outnumbered gainers by 1,105 to 111. A total of 3.28 billion shares worth RM2.78 billion were traded.
KESM Industries Bhd, Dutch Lady Milk Industries Bhd and Petron Malaysia Refining & Marketing Bhd were among the biggest decliners on the local bourse with declines of RM3.06, RM1.60 and RM1.19 to RM14.48, RM66.20 and RM7.01, respectively.
Selling pressure also mounted for small-cap stocks, evidenced by the sharp drop of 7.1% and 6% for the ACE Index and Small Cap Index, respectively.
The ringgit, meanwhile, weakened 0.1% to 3.8675 against the greenback as at 5pm today.
Regional markets were mostly in the red in response to what is seen as an escalation of trade discord between China and the US, with Hong Kong, Singapore and Thailand falling over 2%. However, the Chinese markets were unfazed by the US announcement to slap US$50 billion (RM193.4 billion) tariffs on Chinese goods, with Shanghai and Shenzhen markets only seeing marginal declines of 0.18% and 0.57% each.
Analysts are of the view that the sell-off will persist in the short term due to trade tensions between the US and China coupled with the possible dissolution of Parliament tomorrow.
“It is the beginning of a trade war, that’s why the market is quite panicky,” Areca Capital Sdn Bhd CEO Danny Wong told SunBiz.
Inter-Pacific Securities head of research Pong Teng Siew is especially glum on the prospects of a trade war, citing a possible global recession with market chaos.
“It’s an end game and getting worse with tit-for-tat response from the US and China. It looks like this is how things are progressing.”
Analysts have said the trade war will have a minimal impact on Malaysia given that Malaysia’s trade exposure to both China and the US is only 25% of total trade.
The US and China account for 40% of the world’s total gross domestic product (GDP) and almost a quarter of world trade.
Pong highlighted that many markets, such as Singapore, have shown signs of bear market with a drop of over 20% from their peaks. Despite that, he said this is not the case for Malaysia, that has been quite flat after the “overbought” situation in January.
He added that the Malaysian market will be more positive if the Barisan government wins in the upcoming election.
Meanwhile, Wong foresees investment opportunities despite market correction, as Malaysia, a low-beta and defensive market, could attract inflows of foreign funds.
For local funds such as the Employees Provident Fund and the Social Security Organisation, he said it is a good time for them to accumulate stocks at more reasonable price.
Given China’s hefty tariffs imposition on US soybean, Wong expects the move will benefit its rival palm oil, with more demand from the global market.