PETALING JAYA: After a five-day slump, the FBM KLCI surged 62.54 points yesterday, or almost 4.47%, its highest single-day jump since November 2022, on overnight news that US President Donald Trump has decided on a 90-day hold from enacting tariffs for over 75 countries eager to strike trade deals with his administration.
At 5pm yesterday, the premier index closed at 1,463.13. On Nov 24, 2022, it closed 58.38 points up to settle at 1,501.88 when Datuk Seri Anwar Ibrahim was sworn in as the 10th Prime Minister.
In tandem with the FBM KLCI, major regional bourses rocketed yesterday, with Singapore’s Straits Times Index closing 5.4% up, while Japan’s Nikkei 225, South Korea’s Kospi and the Hang Seng also settled 9.13%, 6.6% and 1.89% higher, respectively.
China’s SSE Composite Index also inched marginally higher by 1.16%.
Notably, Japan and South Korea saw big strides in their markets, and were among the earliest to engage the Trump administration this week.
Judging from how markets worldwide have moved at Trump’s words this week, he must be feeling like the most powerful man in the world, if he is not already in reality, perhaps challenged only by the Federal Reserve chair Jerome Powell and Chinese president Xi Jinping.
In the immediate context, under this arrangement, tariffs on most countries – likely including Malaysia, have been temporarily capped at 10%, down from the earlier-announced 24% rate.
The market rally notwithstanding, analysts are nonetheless continuing to advocate opportunistic caution, saying that it is best to stick with bargain hunting on companies that are fundamentally strong for now.
Economic and equity analyst at Apex Securities Jayden Tan said crucially, Malaysian semiconductors had remained exempt from Trump’s levies, safeguarding one of the country’s critical exports to the United States, before adding that this latest twist in the ongoing tariff saga offers much-needed short-term relief for Malaysia’s technology sector.
“However, a deepening rift (between the United States and China) is likely to accelerate long-term structural shifts in global supply chains, with Malaysia emerging as a likely beneficiary of accelerated relocation and diversification efforts,” he said.
Tan noted that Malaysia continues to play a central role in the global semiconductor ecosystem, contributing approximately 13% of global backend packaging and testing capacity.
In 2024, he said Malaysia exported roughly RM73bil in semiconductor products to the United States, accounting for about 12% to 13% of total electrical and electronics exports, commenting that the exemption of semiconductor products from current tariffs has preserved Malaysia’s export flow and reinforced its strategic positioning in the supply chain.
“That said, the sector is not entirely insulated. Should semiconductors be targeted in future tariff rounds, Malaysian outsourced semiconductor assembly and test players may face margin compression if clients request partial absorption of tariff costs.
“Moreover, given the unpredictability of US trade policy, this exemption remains vulnerable to a potential reversal, if any,” Tan warned.
Despite the uncertain policy backdrop, he believes the risk-reward factor in the FBM KLCI remains attractive, as the Bursa Malaysia Technology Index has declined 40% year-to-date, hitting its lowest level since 2020.
He pointed out that the tech sector is now trading at 15 times one-year forward price over earnings, which is well below its five-year average of 30.6 times.
“Given the accelerating trade diversion potentially benefiting Malaysia, and oversold valuations, we maintain our ‘overweight’ stance on the Malaysian technology sector.
“The next 90 days will be critical in determining the long-term tariff structure and the flow of strategic investments into Malaysia,” said Tan.
Chief investment officer at Tradeview Capital Nixon Wong welcomed the relief rally from the FBM KLCI, but thinks sentiments will remain cautious amid persistent uncertainties and projection for slower growth in the global economy.
“Also, newsflow from China on tariffs may continue to spur volatility in the market,” he reminded investors.
He reiterated his recommendation to focus on quality domestic oriented companies with good fundamentals and high yields such as real estate investment trusts, financial companies such as banks, and selective consumer staples.
On the bigger picture, he told StarBiz: “Ultimately, Trump aims to reduce trade deficits by imposing tariffs or flipping it around and forcing other countries to lower tariffs on the United States.
Wong said China however, may have less to lose now given its lower reliance on US exports, coupled with its more self sustainable domestic economy.
As such, he believes negotiations may be on the table but given how aggressive Trump has been on China by imposing high tariffs, the Asian giant may not back down as easily as anticipated.
Analyst and head of equity sales at Rakuten Trade Vincent Lau, who earlier this week forecast a technical rebound for the FBM KLCI, said yesterday’s resurgence was one such rebound combined with a much needed relief after days of risk-off pessimism following last week’s tariff announcements.
Referring to Trump’s “Great time to buy” message on X that has since gone viral and garnered investors’ attention given the global market bounce, Lau opined that alert traders may have done well to heed the President’s call.
“The good thing is he has now extended an olive branch, as we believe he could have been under pressure too to calm the markets after days of pullback.
It is now down to the other countries to negotiate promptly and wrap up discussions within the 90 days,” he told StarBiz.
At this juncture, the glaring missing piece in the jigsaw is China, he said, who could send optimism soaring among investors if it could find a way to sit down with Trump’s administration.
Earlier, Trump himself had hinted that China intends to negotiate, and that his government is waiting for Xi’s call.
Amidst the knee-jerk reactions and furore displayed by equity markets for most of this week, Lau is of the view that businessman-turned-politician Trump is clear about his “end-game” all along, but that it is nevertheless in the latter’s well-known strategy to make deals and bargains.
More importantly, he believes that unless something drastic occurs in the near-term to intensify the tariff war, the FBM KLCI has at least found support at 1,400 points, given that it had dipped below that but rallied to close just above the level on Wednesday.
“Investors who have been bottom fishing over the week can begin to position themselves with caution on companies with strong fundamentals on Bursa Malaysia,” he told StarBiz.
Of interest, billionaire venture capitalist Chamath Palihapitiya, who is a former Facebook executive, acknowledged that Trump’s tariff move carries substantial short-term challenges, such as potential World Trade Organisation violations, short term inflation as costs rise, retaliation from affected countries, and disruptions to global supply chains.
On the other hand, he said the long-term objective of the tariffs is about rebuilding American industrial capacity, reconstructing wealth for its middle class, and slashing taxes for lower income earners by generating up to US$750bil in revenue for the American government.
A trader familiar with local and American stocks commented that the primary reason the United States is currently more than US$36 trillion in debt is because it is the biggest consuming nation in the world, and it has consumed much more than it produces for “far too long”.
“So maybe from an American perspective, it needs to right this imbalance,” he observed.
