PETALING JAYA: As the global trading environment continues to change, the markets are likely to remain unpredictable pursuant to the latest US tariff policy.
The abrupt change due to the US Supreme Court ruling on reciprocal tariffs being seen as illegal has seen market participants appear to brace for potentially more volatility ahead – at least for the time being.
Following an almost immediate announcement by US President Donald Trump after the Supreme Court ruling, US tariffs are still in place and are now at a lower rate at either 10% or 15% at their maximum.
The FBM KLCI appears to be in a slight risk-off mode since the beginning of the week, although any further sell-off has been well absorbed mainly by the local institutions so far.
The FBM KLCI declined by 0.23% or 3.97 points to 1,754.01 at yesterday’s close.
While stronger losses were seen on the US markets as the Dow Jones Industrial Average fell 1.66% on Monday’s trade, Asian markets were more mixed yesterday, with some markets, such as South Korea’s Kospi and Taiwan’s TAIEX racking up gains of 2.11% and 2.75%, respectively.
The divergence and gains that were seen in major exporting countries yesterday are due to investors pricing in the effectively lowered US tariff rate seen for the present moment. However, given the fluid nature of the situation, unpredictability could still reign for risk markets even as US Treasury yields rose yesterday, with the 10-year Treasury yield rising around one basis point to 4.042% at the time of writing.
Any further bargain hunting could still be tempered by realism as the markets adjust to the evolving macro outlook.
For Malaysia, the macroeconomic outlook appears to be still intact, despite the latest change to the US tariffs policy.
“Subject to clarity on the Trump administration’s new 15% global tariff, Malaysia’s exports will benefit from a lower effective tariff compared to 19%,” noted Socio-Economic Research Centre’s executive director Lee Heng Guie.
He said exports to the United States have been growing steadily, mainly supported by the electronics and electrical products, which are not subjected to tariffs.
“However, headwinds for exports will remain as the Trump Administration has several alternative legal pathways to impose tariffs without Congress, and efforts to implement them could generate short-term volatility,” he told StarBiz.
“These include duties imposed under other statutes – including tariffs he has levied on semiconductor, steel, aluminium, automobiles and certain other products justified by national security findings under Section 232 of the Trade Expansion Act of 1962,” Lee said.
“Those measures are based on Commerce Department investigations and were not challenged in this case.
“The US administration could also initiate new investigations into unfair trade practices under Section 301 of the US trade law, a process that could eventually lead to levying tariffs but typically takes months or longer,” he noted.
Lee expects this year’s economic growth prospects to still remain intact as the government is banking on sustained domestic demand, continued investment and robust tourism activities, although it is cautiously optimistic on exports.
“Exports remain a wild card, as the latest decision of the US Supreme Court provides short-term relief to the US’ trading partners.
“The fundamental drivers for the ringgit remain positive.
“We believe that the conditions are primed for a sustained strength in the ringgit against the US dollar.
“The dollar’s weakening bias has provided a favourable, ‘risk-on’ environment that has strengthened many emerging market currencies, including the ringgit, and fuelled capital inflows,” Lee added.
He noted the recovery of the ringgit is considered sustainable with its positive trajectory, expecting the local currency’s value to settle between RM3.7800 and RM3.8500 per dollar over the next six to 12 months.
“There remains a risk to its trajectory, facing potential volatility from global geopolitical events, global growth slowdowns, volatility in commodity prices and exports, as well as being tested in the second half of financial year 2026 if the US dollar stabilises,” Lee said.
Assuming a flat 15% tariff uniform rate, Maybank Investment Bank Research (Maybank IB) expects goods from Cambodia, Indonesia, Vietnam, Thailand, the Philippines and Malaysia to be subject to lower effective duties; with declines ranging from minus 1.2% points (Malaysia) to minus 3.1% points (Cambodia).
“Effective US tariffs on the weighted average of the Asean-6 economies – comprising Singapore, Malaysia, the Philippines, Thailand, Vietnam and Indonesia – will be lower by minus 1.4% points.
“These drops pale in comparison to the decline in effective tariffs on China (minus 4.9% points), as an extra 10% “fentanyl-related” duties are also removed.
“Notably, the fate of Trump’s 40% tariffs for goods deemed to be illegally transshipped is uncertain, receiving no mention under the Section 122 tariff framework,” it said.
Although it looks as though Singapore is relatively disadvantaged due to it being the only regional economy previously subject to 10% duties, the research house said Singapore’s effective US tariff rate is still by far the lowest among Asean countries in absolute terms.
“Singapore’s goods face effective US tariffs of 6.9%, followed by Malaysia at 14.3%.
“Singapore remains the Asean country with the largest share of exempted goods (such as semiconductors, electronics and pharmaceuticals).
“Exempted goods comprise more than 60% of Singapore’s US-bound shipments, while they account for 47% of Malaysia’s,” it noted.
While China’s prevailing US tariffs stand at a hefty 25% as around 30% of its shipments to the US attract elevated product-specific duties, it said.
“Cambodia (27.3%) and Indonesia (20.7%) are still the Asean countries facing the highest effective US duties.
“These countries face effective duties above the new 15% tariff rate primarily because a higher share of their exports to the US are subject to product-specific duties, and they generally do not produce large amounts of tariff-exempted products,” Maybank IB said.
