PETALING JAYA: The tariffs slapped by the US on China will likely see the Malaysian equity market trading sideways with the KLCI hovering between 1,838 and 1,881 in the near term,according to AmInvestment Research.
“Should the market surpass the 1,881 level, the next resistance is anticipated to be at the historical high of 1,896. However, if the market dips below the 1,838 level, the next major support is at 1,795 with the psychological mark at 1,700,’’ it added.
The research house noted that the local equity market, like other regional markets, may also be caught in the jitters given that exports play a crucial role in driving gross domestic product (GDP) and concerns on companies involved in the global supply chain production of the Chinese exports.
It felt that investors who seek to cushion their portfolios against the risk of a full-scale trade war should ensure that they are not overexposed to export-oriented equity regions or sectors that are highly dependent on global supply chains as these will be hit by a combination of rising input costs due to tariffs, and possibly also supply restrictions.
“We suggest investors to have adequate global diversification, including assets in the US where some sectors could benefit directly from the tariffs example steel manufacturers.
“They should consider equity put options to reduce portfolio volatility. Put options are financial instruments that give traders an option to sell assets at an agreed price on a particular date, thus allowing traders to hedge their portfolios,’’ it said
AmInvestment Research said it foresee equities facing the biggest hit as corporate earnings, especially from the cyclical sectors most exposed to economic swings, will likely face strong selling pressure.
“Companies which account for a large portion of global production chain of Chinese exports i.e. the US, South Korea, and Taiwan will be affected.
“Japan’s equity market will remain jittery due to the strong importance of exports in driving GDP and also a stronger yen, which is deemed as a safe haven currency, will make its exports more expensive.
“Selling pressure remains on China and Hong Kong markets. European and S Korean markets will be less impacted since they are included in the exemption list alongside Argentina, Australia and Brazil but they may still be less attractive as investors seek a safe haven,’’ it noted.
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