PETALING JAYA: European and Asian equity markets around the world were routed after US President Donald Trump issued fresh tariff threats against China.
The yuan fell the most in three years, Dow futures were down more than 400 points and Brent oil was down 2.26% to US$69.25.
The FBM KLCI was a sea of red in line with some of its regional peers as investors reduced exposure on the back of US-China trade negotiations turning sour.
The FBM KLCI closed off its lows, down 4.5 points or 0.27% to 1,632.8 yesterday.
Turnover was 2.79 billion shares valued at RM1.70bil. Decliners beat advancers by more than five to one or 790 losers to 150 gainers, with 324 counters remaining unchanged.
Trump on Sunday raised pressure on Beijing to strike a trade deal by announcing he would increase tariffs on US$200bil of Chinese imports to 25% from 10% on Friday. He also suggested the possibility of extending a new 25% duty on US$325bil worth of imports.
Reports said Chinese Vice Premier Liu He would likely cancel the trip he had planned for himself and a 100-person delegation for the final round of talks that US officials had previously said could yield a deal by Friday.
Before this new development, the United States had been targeting May 10 to announce a deal that would be finalised and signed by Trump and Chinese President Xi Jinping later at an official summit, sources had said last week.
Trump imposed duties of 25% on an initial US$50bil of Chinese goods last year and 10% on an additional US$200bil of products in September.
The duties were set to rise to 25% on Jan 1 and again on March 1, but Trump delayed that as talks continued. China has imposed tariffs on US$110bil of US exports in retaliation.
Although trade wars would transform supply chains, they would not erase trade altogether.
“Shipments to the United States will continue from elsewhere,” said Fisher MarketMinder.
It was commenting on a survey which showed that 93% of Chinese companies had to transform their supply chains as a result of the trade war with the United States.
“This may keep a supply chain mostly intact while sidestepping tariffs. These moves aren’t costless and create winners and losers, but they tend to divert trade rather than erase it.”
Furthermore, considering how complex and entrenched current supply chains are, Fisher MarketMinder said most firms would exhaust all other options before resorting to a complete overhaul and transformation.
“We think this explains why tariffs didn’t stop global trade from growing 3.3% in 2018,” it added.
Separately, the ringgit was also in the doldrums. It extended Friday’s downtrend to open lower against the US dollar yesterday, ahead of the announcement on the overnight policy rate (OPR) by Bank Negara today.
As at press time, the ringgit was lower at 4.1465/1495 compared with 4.1410/1440 at Friday’s close.
Head of AmBank Research Anthony Dass said that given the less-exciting export and import numbers in the first quarter of 2019 (1Q19), the first-quarter gross domestic product (GDP) would likely register a weaker number.
His preliminary estimates suggested that the GDP for the first quarter would hover between 3.8% and 4.2%.
“With a weak outlook for the 1Q19 GDP data, noises that Bank Negara may cut the 3.25% OPR in the coming May Monetary Policy Committee meeting have gained traction. However, the central bank would most likely hold the rate in May and institute a rate cut in July,” he said.
Exports and imports continued to stay in the negative region for the second consecutive month. Exports fell 0.5% year-on-year in March while imports dropped 0.1%, bringing first-quarter exports down 0.9% while imports are down 2.8%.
The drag in exports came from the electrical and electronic segment, but was cushioned by resource-based products.
Meanwhile, Malaysia’s equity market recorded a foreign outflow of RM1.49bil in April, marking the third consecutive month of foreign net selling.
MIDF Research said this brought the foreign outflow from Malaysia for the first four months to RM2.76bil compared with a foreign net inflow of RM3.71bil recorded during the same period last year.
Based on data from Bursa Malaysia, foreign funds sold RM275.7mil net of local equities last week, almost four times more than what was seen in the week before.