The FBM KLCI is expected to hold between 1,550 and 1,600 points with potential upside.
PETALING JAYA: It was a much-needed boost for investors as the United States and China agreed to a trade truce, causing major equity markets to soar.
The S&P 500 Index jumped 3.3%, notching its best day since April 9, while the Nasdaq 100 Index advanced 4%, nearly erasing its year-to-date losses.
Similarly, Bursa Malaysia’s FBM KLCI closed more than 2% higher yesterday, up 35.89 points to 1,582.39, fuelled by optimism over easing trade tensions between the world’s two largest economies.
The two countries agreed to temporarily reduce tariffs on each other’s goods for 90 days. But is this a textbook recovery, or can the rally be sustained?
Rakuten Trade head of equity sales Vincent Lau, who has always maintained a “glass half full” stance on the tariff issue, said he had expected a deal within the timeframe of the original 90-day tariff pause announced on April 9.
Reckoning that it is “good news” for all concerned, Lau believes that with the latest developments, the FBM KLCI should be able to maintain its current level between 1,550 and 1,600 points, although the release of the latest inflation data in the United States overnight could still pose risks in the immediate term.
“As a whole, we think that there is still upside to the market, and we are confident it may trade between the 1,650 and 1,680 levels by year-end.
“This could be further enhanced by Washington’s decision to rescind curbs on chip exports, which can only benefit Malaysia as one of the world’s largest semiconductor exporters,” he told StarBiz.
More pointedly, despite both the United States and China at present holding onto the aforementioned residual tariff levels, which critics say may still be escalated, Lau said it is more important to look at the bigger picture.
“It needs to start somewhere, and this de-escalation is a good beginning. Aside from the technology sector, we believe the IPO (initial public offering) market will also re-adopt a more risk-on position for now, as the environment has become more conducive,” he added.
Trading platform Moomoo Malaysia head of dealing Ken Low said the tariff pause between Beijing and Washington has shown early signs of recalibration, particularly in export-sensitive sectors such as technology and manufacturing, which had been under pressure from earlier trade headwinds.
However, he views the truce as more of a pause rather than a pivot and, as such, is anticipating a modest recovery for the FBM KLCI in the second half of 2025, assuming there are no major escalations in geopolitical tensions or monetary shocks.
“Our internal outlook suggests that the premier index may trend toward the 1,650 level by year-end. This temporary respite opens the door for more pragmatic negotiations and bilateral adjustments.
“Malaysia could benefit through trade diversion, supply chain reconfigurations, and enhanced engagement with both superpowers, particularly in technology, agriculture, and green energy cooperation,” he told StarBiz.
According to Low, sectors that stand to gain the most from the trade agreement are technology and semiconductor, energy, financial services and plantation.
Overall, analysts are mostly bullish on the much-anticipated trade agreement between the United States and China to lower tariffs on each other’s products for the next 90 days. They view it as a major de-escalation between the world’s two largest economies.
In summary, under the agreement negotiated in Geneva between US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng over the past weekend, the United States will reduce additional tariffs on Chinese goods from 145% to 30%, while China will lower tariffs on US imports from 125% to 10%.
Beijing will also suspend non-tariff barriers against Washington, which had effectively created a trade embargo.
CIMB Securities, in a note to clients yesterday, called this a positive development as it represented a significant step toward de-escalating the tariff war that has severely dampened trade between the two countries.
“The scale of tariff reductions exceeded market expectations and is likely to raise investor risk appetite in the near term.
“The tariff cuts also offer immediate relief by allowing US and Chinese companies to increase trading activities, thereby reducing the risk of the US and global economies slipping into recession,” the note said.
The research house added that reports that India and Pakistan have agreed to a US-backed ceasefire have also helped ease broader geopolitical concerns.
That said, it cautioned that uncertainties persist regarding the outcome of the 90-day period and whether the current de-escalation will be sustained.
“Additionally, US tariffs on China, though reduced to 30%, remain significantly higher than the 10% tariff currently imposed on other trading partners,” CIMB Securities highlighted.
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Notably, it said banks could benefit from the current arrangement, given their liquidity and role as direct proxies for the domestic economy, while the plantation sector may also gain from stronger global edible oil demand and higher crude oil prices if the broader economy improves.
“In the technology sector, easing trade tensions could support global semiconductor demand, while Malaysian technology players continue to retain a competitive edge, as US tariffs on Chinese goods remain higher compared with those imposed on Malaysian goods,” the brokerage noted.
Meanwhile, MIDF Research was pleasantly surprised at the outcome of the trade talks between the two superpowers, as it had only expected an announcement of further negotiations, or at best, a partial tariff reduction.
“The reduction was better than our and market expectations, and a much welcomed de-escalation in our view,” it said.
MIDF Research noted that uncertainty remains over where tariffs will ultimately settle and what the broader impact will be on global growth and central bank policy.
“We are still concerned that (persistent) uncertainty may weigh on business investment decisions. We expect that this may continue to drag on global economies.
“Hence, we are maintaining our base-case forecast of a 4% gross domestic product (GDP) growth for Malaysia this year,” the research unit added.
Tradeview Capital chief investment officer Nixon Wong expressed hope that the latest trade agreement between the Trump administration and China is not merely an act of kicking the can down the road.
Ideally, he called for more conclusive deals to be inked when the current agreement ends in August.
“Our year-end target for the FBM KLCI remains at 1,650 points. A lot of agreement details are still pending, and we believe it is not easy to manoeuvre given that significant trade imbalances between the two superpowers remain,” he said.
As for the ringgit’s performance, HSBC Global Research said it has turned slightly more constructive on the local unit, upgrading its year-end forecast from RM4.45 to RM4.20 against the US dollar.
In a report dated May 9, it noted that elevated external volatility has likely tipped the balance slightly in favour of the local note over the medium term, as ongoing global uncertainty may prompt government-linked companies and government-linked investment companies to accelerate the repatriation of foreign earnings.
The research house added that global market turmoil may slow foreign-exchange purchase for outward portfolio investments among Malaysians – previously a key source of depreciation pressure on the ringgit.
The local note was trading at approximately 4.32 to the greenback at the time of writing yesterday, slightly weaker than the 4.29/4.30 seen on Monday.
