The FBM KLCI index fell below the 1,500 mark during early morning trade before regaining some of its losses after lunch break as investors were spooked by the increasing tension between the United States and China.
US trade adviser Peter Navarro has announced that a trade deal between the two countries was “over”, which was quickly contradicted by US President Donald Trump.
Trump tweeted that the deal with China is still in place.
“The China trade deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!” Trump said.
This has sent stock markets in Asia topsy turvy but they recovered later in the day. Most stock market indices in Asia closed higher except for Malaysia and Indonesia.
The FBM KLCI, which is made up of the 30 largest companies on the Bursa Malaysia by market capitalisation, has fallen by 4.2 points to 1,507.04 points yesterday dragged by banking and healthcare counters.
Overall market breadth was negative with losers outpacing gainers 522 to 423, while 446 counters were unchanged.
Senior research analyst Imran Yassin Yusof expected the stock market to continue to be volatile in the near term as sentiment remains fragile.
“While the confusing statement coming from the United States in relation to the US-China trade war may be one of factors driving the market today, we believe that it is not the only factor.
“One of the underlying factors is that investors may be hoping that there will be a sharp V-shape recovery in the economy following from the impact of the Covid-19 pandemic and the lockdowns, ” he told StarBiz.
However, he reckoned that the expectation of swift recovery in the economy could be moderated by the threat of a second wave of Covis-19.
“Some countries have yet to see the end of a first wave, and have seen infections spiking. This provides some sort of a ‘reality check’ for investors as the economic rebound may not be as swift as anticipated, ” Imran said.
Imran expected that the upward movement of the stock market is not sustainable as it was driven by the copious amount of liquidity provided by central banks all over the world.
“Hence, in the immediate term, the stock market may continue to push further up but will likely not be sustainable, and will move to trading range bound, ” he said.
With companies earnings for the second quarter to be under pressure due to the impact of Covid-19 and lockdown, he expected a second downward thrust for the stock market before eventually recovering towards the end of year.
“We are maintaining our 1,320 FBM KLCI target for 2020, ” Imran said.
The global oil market was volatile yesterday with 2.3% dropped in prices after Navarro’s statement. The international benchmark Brent oil had plunged suddenly after Navarro told Fox News in an interview that the trade deal with China was “over”.
Brent crude price had risen earlier in the morning before it slid suddenly to a low as US$42.21 per barrel.
Prices later recovered in the afternoon to to trade as high as US$43.72 per barrel on the prospect of higher oil demand due with the reopening of some countries around the world.
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