Local stocks skid on debt risk, fresh US-China trade tensions

PETALING JAYA: Malaysian stocks skidded 2.21% today – the steepest decline among markets in the Asian region – on renewed trade tensions between the US and China as well as concern over rising public debt in the country.
The FBM KLCI tumbled 40.78 points or 2.21% to close at its intraday low of 1,804.25 points after heavy selling emerged in the afternoon session, just 4.25 points shy of the 1,800-point psychological level.
A total of 2.69 billion shares valued at RM3.34 billion changed hands. Market breadth was negative with 763 losers against 237 gainers.
Among the top losers were Dutch Lady Milk Industries Bhd, Panasonic Manufacturing Malaysia Bhd, Ajinomoto (M) Bhd and Axiata Group Bhd, which fell 96 sen, 68 sen, 64 sen and 64 sen, to RM69.02, RM38.94, RM22.90 and RM4.43, respectively.
The trading/services index contracted 2.77% while the industrial index eased 2.23%.
On the currency front, the ringgit weakened 0.3% to 3.9790 against the US dollar as at 5pm today.
Asian stock markets were mostly in the red, with Hong Kong seeing a decline of 1.82%, followed by Singapore and Tokyo, which fell 1.32% and 1.18% respectively, after US President Donald Trump's remarks on Tuesday that he was not happy with the latest round of trade talks with China, just a couple of days after both countries agreed to put their trade dispute "on hold".
On the local front, the equity market was also dragged down by an announcement by Prime Minister Tun Dr Mahathir Mohamad that the country's debt level has hit RM1 trillion, or 65% of gross domestic product (GDP), and not 55% of GDP as presented by the previous government.
JF Apex Securities head of research Lee Chung Cheng said besides the external trade war factor, local investors were jarred by the high level of national debt, which may weigh on Malaysia's sovereign credit ratings.
Following that, he does not expect net foreign fund inflows to happen anytime soon. "Foreign funds will continue to remain on the sidelines until more clarity from the new federal government," he told SunBiz.
Areca Capital Sdn Bhd CEO Danny Wong Teck Meng said the market is closely monitoring how the government will address the debt issue in order to maintain credit ratings.
He highlighted that it will be crucial to see the introduction of measures to contain the fiscal deficit to GDP below 3%, in the next two to three weeks.
"Over the short term, people see what will happen and the government's ability to tackle the removal of GST, toll charges and subsidies. They're waiting for more clarity on how to cushion the cash flow problem."
International rating agencies have warned that the GST removal is "credit negative" for Malaysia with revenue loss to the government, citing that the country should not be too dependent on the current high oil prices.