Trade threats keep investors on edge

  • Business
  • Saturday, 31 Aug 2019

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The outlook on Bursa Malaysia grew even more shaky as Washington and Beijing continued to fan the flames of a trade dispute that had stretched on for over a year.

A late-week exchange of positive words between the two nations saw the FBM KLCI retrace its earlier losses, which left the index little changed but on a weak footing nonetheless.

For the earlier part of the past week, the domestic market saw strong selling pressure as the FBM KLCI returned below the 1,600 mark, reflecting a new leg of pessimism that had overtaken the trading landscape.

Corporate Malaysia also entered its final week of the second-quarter earnings season, which typically sees the release of results from big-cap counters, upping the ante on caution.

As was expected, an 8.8-point slide on the FBM KLCI was seen on Monday, tracking a decline in regional markets that was in turn fuelled by the bloodshed on Wall Street on Aug 23.

A dramatic escalation in the trade war had come late last Friday as an unwelcome surprise to investors, who were then tuned in to the Jackson Hole symposium for indications of a US Federal Reserve rate cut.

Indeed, market focus swung back to US President Donald Trump as he announced a further hike in tariffs on Chinese imports in response to China’s own trade tax announcement.

By Sept 1, a 10% tax on US$300bil of Chinese goods imported to the US has scheduled for increase to 15%.

The president’s speech came with strong provocation as he “ordered” American companies to stop doing business and manufacturing in China.

As markets buckled under the pressure on Monday, Chinese vice-premier Liu He reiterated that an escalation of the trade conflict would not be “in the interest of the people in the world”.

Asian markets were primed for a Tuesday recovery as investors were somewhat assuaged by the de-escalating rhetoric. However, Bursa Malaysia did not react quite as optimistically as its regional counterparts.

While China led a climb in equities, the FBM KLCI continued to slide. At market close on Tuesday, the local benchmark had dropped a further 9.69 points to 1,590.84.

The negative news on the trade front would also worsen recession fears as investors took flight to safe havens and fixed-income assets.

As investors took to buying US Treasuries, a deeper inversion was seen between the two-year and 10-year yield curves, worsening recession fears.

The inverted yield curve, which is a historical indicator of a looming recession, cut through the feel-good rhetoric of the previous session and sent US markets once more into a decline.

On Wednesday, the FBM KLCI extended its decline for the third straight session, but slowed its descent to 1,589.82 points.

The rebound came on Thursday as the tone between Washington and Beijing turned more conciliatory.

By Thursday night, China’s Ministry of Commerce spokesperson had reiterated Beijing’s commitment to discussions, and said it would not be responding to the US with further tariffs.

In response to Beijing’s deferment of a trade response, Trump extended an offer to restart trade talks.

On the domestic scene, decent earnings results from heavyweight companies gave investors buying opportunities as trade tensions de-escalated. By market close, the market had rebounded 5.36 points to 1,595.18.

The rebound extended on Friday as renewed trade talks once again lent a silver lining the week’s headwinds, putting the FBM KLCI in a net positive position over the week.

Statistics: The major index ended the week 2.81 points or 0.2% higher over the previous week, at 1,612.14.

Total turnover for the trading week stood at 10.48 billion shares amounting to RM9.64bil compared with 10.32 billion shares worth RM8.44bil over the previous trading week.

Outlook: Friday’s rebound changed the FBM KLCI’s outlook to a more bullish one as the return of the US and China to the negotiation table kept investors hopeful.

The slow-stochastic, which had plunged over the course of the week, bounced off the oversold line and moved higher with the percent K oscillator crossing over the percent D oscillator in a “buy” signal.

The daily moving average convergence/divergence line is also picking up off the signal line, which signals growing momentum.

However, it remains firmly in a negative territory, reflecting the current downtrend.Nevertheless, given the volatility in the market, anything short of a more meaningful advance leaves the index looking bearish.

Looking at the daily price chart, the share is peeking over the short-term simple moving averages (SMA).

It faces resistance overhead at 1,625, a crossing of which could see the end to the current consolidation.

Higher up, resistance is found at 1,660, which currently meets the 200-day SMA. However, should this rally fizzle, support lies at 1,570 and 1,550.

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