REVIEW: As a fresh chapter in the US-China trade war saga unfolded, global markets swung along on high speculative interest.
Amid the growing uncertainty, investors kept their ears peeled for reactions by policymakers on both sides of the divide with trading action determined by the slightest hint of resolve.
World stocks were pummelled by the turn of events in the previous week but some mitigating effects were seen as investors expected China to increase stimulus measures to support the economy.
US policymakers also attempted to sooth investor nerves and propped up the market over the previous Friday with optimistic comments. Nevertheless, that did not stave off the inevitable. On Monday, China made the widely expected announcement that it would retaliate over the US’ fresh trade tariffs with its own taxes on US$60bil of US imports.
Strong selling pressure was seen in Asian markets as this marked an escalation of the conflict. The FBM KLCI started the week 9.18 points lower at 1,601.09, just above the crucial 1,600 support mark.
As US markets opened later that evening, it turned to furious selling. The Dow Jones Industrial Average plunged a whopping 617 points or 2.4% while the S&P 500 also fell 2.4% and the Nasdaq Composite sank 3.4%.
The bloodshed on Wall Street had US President Donald Trump attempting to mitigate the damage. He spoke of expectations of “very successful” trade talks and set a timeline of several weeks before his meeting with China’s Xi Jinping at the G20 Summit.
On Tuesday, the FBM KLCI tracked Wall Street’s performance, plunging 29 points in the opening minutes of trade. But hungry for bargains, investors took to cleaning up oversold shares, whipping the index higher to end the day only 1.9 points lower at 1,599.19.
The index had slipped just below the crucial support line of 1,600, which served to unnerve investors. With technical indicators pointing to a continued downtrend, it appeared that a convincing breach of the support was in the offing over subsequent sessions.
However, that night, the US equity market had yet another positive session as Trump embarked on a second round of rhetoric to boost investor sentiment, brushing off his feud with China as a “little squabble”.
This preceded a good day for the FBM KLCI. On Wednesday, telcos Axiata and Digi were on the move as buying interest over their merger continued to lift.
Glove makers were also seen trending higher on expectations that the fresh trade tariffs would help bog down their Chinese rivals. Meanwhile, Dialog jumped in active trade, having announced better-than-expected earnings.
In a rare show of strength, the market chalked up 599 gainers to 276 decliners, while the FBM KLCI climbed 12.24 points to 1,611.43.
Bank Negara’s Thursday release of better-than-expected 4.5% first-quarter GDP growth didn’t move the needle on the stock exchange. The index moved in sideways trajectory until the final minutes of trading when foreign selling triggered a 12.24-point drop to 1,599.19, erasing all of the previous session’s gains to the decimal.
The ringgit, however, already buoyed by rising oil prices, jumped on the central bank’s plans for financial market liberalisation and received a temporary reprieve from its downtrend.
Yesterday, investors once again took to bargain hunting, lifting the index to a week’s close of 1,605.36 points.
Statistics: The major index ended the week 4.91 points, or 0.3%, lower over the previous week, at 1,605.36. Total turnover for the trading week stood at 11.8 billion shares amounting to RM9.41bil compared with 12.71 billion shares worth RM9.86bil over the previous week.
Outlook: The oscillating FBM KLCI suggests that investors are quick to digest any fresh leads or stories coming out of the US-China pipeline. The index managed to prevent further deterioration following the selldown last week, and despite a weekly loss, found some footing on the technical charts.
While the momentum remains bearish and the index remains below the descending trendline, the resilience that was seen on Tuesday as it retraced intra-day losses suggested some holding power to the 1,600 support.
Over Wednesday to Friday, the index traded just slightly outside of the 1,600-1,609-point range, which indicates some consolidation taking place.
The momentum indicators have turned more positive with the slow-stochastic suggesting growing confidence in the counter. The daily moving average convergence/divergence line, however, remains below the signal line in negative territory, suggesting that further share price advances will need to be seen before it commits to a “buy” signal.
Continued volatility is expected for the market over the coming week as policymakers and state media engage in more rhetoric. Signs of investor fatigue were clearly showing by yesterday as trading value on the stock exchange dipped to under RM1.5bil.
A crossing of 1,626 overhead will see a breach of the descending trendline while 1,640 (meeting the 50-day simple moving average) serves as a more telling return to positive sentiment.
The 1,600 psychological support held yesterday was risky given that even 1,580 was breached earlier in the week on negative news flow.