Rakuten Trade's Lau said it is difficult to pinpoint the bottom of the bearish trend in the current environment.
PETALING JAYA: Fresh from a tariff-induced dive to its lowest point since December 2023 on Monday, the FBM KLCI saw more fighting between the bulls and the bears yesterday as trade uncertainties continue to loom large in the background.
Analysts believe that only a proper sitdown between United States President Donald Trump and his Chinese counterpart Xi Jinping can bring tangible clarity to the ongoing tariff issues.
Malaysia’s premier bourse ended the day by a marginal 0.24 points lower at 1,443.56, with a total of 270.1 million shares traded, after intense see-sawing between green and red, as news from around the globe filtered in about efforts from the European Union (EU) and Japan engaging with the Trump administration on tariffs.
Asian bourses mostly trended higher, with the notable exception of Singapore’s Straits Times Index, which declined by another 2% to close at 3,469.47.
The EU has stated it is open to more discussions with Trump, but on equal measure has emphasised it could also adopt a retaliatory stance, while worryingly, both the United States and China have been exchanging barbs with neither looking willing to back down.
Latest developments have indicated that the United States has threatened China with an extra 50% tariff on goods imported into the country if it does not withdraw its 34% counter-tariff.
If Trump goes ahead with his latest threat, US companies could face a total rate of 104% on Chinese imports – as it comes on top of the 20% tariffs already put in place in March and the 34% announced last week.
Head of retail research at Hong Leong Investment Bank Research Ng Jun Sheng, in a note yesterday, said the FBM KLCI is now trading at an undemanding valuation with a price-to-earnings ratio of 12.2 times, based on the earnings per share for the year 2026, following a 12.1% year-to-date slump.
“With net foreign outflows of RM11.5bil, which is 69% higher than the RM6.8bil from 2023 and 2024, and foreign shareholding at a historic low of 19.3% in March, we believe much of the downside appears priced in.
“More importantly, in the short term, we expect continued volatility and any forthcoming oversold rebound may be capped around the 1,463 to 1,478 to 1,500 resistance levels, driven by ongoing trade turmoil, recession fears and persistent foreign outflows,” he said.
Ng identified the 1,463-point level as the long-term support from the March 2020 lockdown low and the 1,478 level as the March 12, 2025 trough.
On the downside, he said key support levels are at 1,418 points (Tuesday’s intraday low), 1,400, and 1,386.
On whether investors will be seeing a sustained rebound from the FBM KLCI any time soon, Herald van der Linde, head of Asia equity strategy at HSBC is keeping a lid on the optimism, as he believes the exact impact of the tariffs on growth is hard to assess immediately, and this is likely to keep the market volatility elevated for some time.
On the other hand, he told StarBiz that while tariffs can hurt growth, they also provide greater impetus for fiscal support to counter the hit.
“Central banks are likely to prioritise growth and a softer US dollar opens the door for significant monetary easing,” he said, before adding that due to the heightened uncertainty, he prefers stocks with more domestic exposure at this moment.
As the FBM KLCI was hovering between positive and negative movements yesterday, analyst and head of equity sales at Rakuten Trade Vincent Lau believes the FBM KLCI could see a possible technical rebound in the near term after four consecutive days of decline.
A technical rebound in stock market terms refers to a short-term recovery or upward movement in a stock’s price or index after a period of decline, driven primarily by technical factors rather than fundamental changes in the company’s or index’s value or performance.
It is usually seen as a temporary bounce rather than a sustained trend reversal, and Lau said this is likely the case with the FBM KLCI because the tariff issue will remain on investors’ minds at least until negotiations between the United States and its trade partners yield constructive results in the eyes of the market.
“If all the antagonistic noise between China and the United States persists, it obviously will not be beneficial to anyone, so we need to hear directly from both Trump and Xi on what they really intend to do. They are the two superpowers at the moment,” he told StarBiz, before observing that investors are also bargain hunting.
For clarity to emerge, he opined a high level meet-up to hold discussions between the two governments as necessary.
This will coincide with reports that Japan is sending a team of negotiators to talk to Trump, who had also spoken to Japanese Prime Minister Shigeru Ishiba on Monday.
Lau is of the view that threats so far between the United States and China have been rather tense, as the market hopes for a reconciliatory and mutually beneficial move between the two before any real progress can be made, and to prevent the tariffs issue from escalating into an all-out trade war.
While also forecasting the index to stay below 1,500 points due to the uncertainty, he pointed out that it is difficult to pinpoint the bottom of the bearish trend in the current environment, although investors can start to allocate a small portion of their funds for bargain hunting.
“Investors have to factor in the possibility that the market could still recede, as long as the tariffs issue is not resolved, because it is already affecting exports globally. It is best to stay cautious for now,” he added.
Meanwhile, global chief economist at Manulife Investment Management Alex Grassino acknowledged that initial market reaction towards the tariffs have been negative, with equities seeing a decline and US Treasury bonds getting bids.
Commenting that markets often respond with knee-jerk reactions on the back of fiscal policy developments, he said broad equities would hence often correlate and trade in a similar fashion.
“This high correlation means that markets are treating all companies equally even though they can vary greatly fundamentally.
“As we experience volatility, this will likely lead to opportunities for fundamental investors that can find high-quality companies that are seeing lower valuations,” he predicted.
In addition, Grassino said the bond market is acting as a diversifier and likely will continue to do so in the current environment, noting that as equity correlations spike, asset class diversification from stocks and bonds is likely to increase.
“The US 10-year Treasury yield started 2025 at 4.57% and is currently at 4.13%. The bond market, for now, is pricing in three rate cuts over the course of 2025.
“In our view, high-quality bonds offer attractive income and can potentially benefit from further interest rate cuts,” he said.
