PETALING JAYA: Geopolitical tensions, energy prices and monetary policy actions matter more than the outcome of the midterm elections in the United States.
The artificial intelligence (AI) trade, which is also an important source of US dollar support, will drive global market sentiment and positioning in the near term, say analysts.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the just concluded US midterm election will more likely have a minimal impact on the local equity market.
“I think, at the top of investors minds now is the war in West Asia, oil prices and the US Federal Reserve (Fed) policy.
“Above all, the AI valuation is something to think about. For now, those are key factors that drive investor sentiment,” he told StarBiz yesterday.
The Democrat party secured control of the US Senate and the House of Representatives, giving the party control of both chambers of Congress.
Concerns over the win and how this might impact markets have risen, particularly as regards to the implications for US economic policy, trade relations and the direction of President Donald Trump’s administration could swing.
The idea is that a Democratic-controlled Congress could act as a stronger check on the president’s policy agenda, potentially increasing uncertainty over tariffs, fiscal spending, taxation, AI regulations and infrastructure spending and regulatory measures.
Early market action reflected the concerns, South Korean and Taiwanese stock benchmarks tumbled yesterday as early US midterm election results pointed to strong Democratic gains.
The tech-heavy benchmarks like the Kospi fell 4% while Taiwan’s benchmark index lost 3.3%. Late buying, however, saw them coming of their lows while major European benchmarks opened higher in early trade.
The FBM KLCI closed the day five points lower at 1,610 points but the tech index closed higher.
Mohd Afzanizam alluded to the fact that he does not think the US election outcome will change the course of action when it comes to America’s protectionist trade policies.
He said a good example would be the policy measures under Democrat Joe Biden’s administration.
“The Joe Biden administration between 2020 and 2024 maintained the protectionist policies by Trump 1.0, especially with regard to China.
“Both parties agreed that protecting domestic industry and reducing reliance are the main economic priorities. Hence, protectionism will continue to shape US economic policies the way we see it,” Mohd Afzanizam said.
Hence, post-election, the topic of Trump’s tariffs may come under the spotlight again but without major changes.
Kenanga Investment Bank Bhd
economist, Afiq Asyraf Syazwan Abdul Rahim, said the outcome of Democrats winning does not necessarily change the direction of trade relationships but rather, how the policies are made.
He said Malaysia’s tariff no longer depends on the reciprocal tariff framework as the current 10% comes from Section 301, following the launch of US investigations in March into forced-labour import controls across 60 economies.
“The power over tariffs sits with the executive, not Congress. A Democratic Congress can scrutinise how the president uses it, but rolling it back would take legislation that he can veto.
“For Malaysia, expect continuity in the tariff level and more political friction around it,” Afiq Asyraf said.
He added the election results could lower the risk of a sweeping, broad tariff more than a targeted one.
“Affordability decided this election, so a blanket tariff that raises prices for American households is now harder to defend.
“The risk shifts to sector measures. Malaysia benefits more through lower risk premia and a softer US dollar than through a lower tariff rate,” he explained.
More definitely, Afiq Asyraf said if companies look to diversify away from tariff-exposed markets, Malaysia could still be a beneficiary.
Right now, Malaysia is among 17 of the 60 economies on the 10% rate, while the rest face 12.5%, and China faces considerably more.
“That keeps our cost advantage intact.
“Malaysia also brings depth in semiconductor back-end, a growing data centre base, and available power and land.
“The main swing factor is semiconductors: the current Section 232 tariff of 25% applies narrowly, to certain semiconductors and products containing them, depending on technical parameters and intended use, so most of Malaysia’s chip exports are not caught by it today,” he said.
Similarly, head of research at MBSB Research Imran Yassin Yusof believes the Democrats winning control over Congress could reduce a number of uncertainties.
“We may see Congress exerting influence in policies pertaining to trade and foreign affairs.
“Although we may see knee-jerk reactions, this reduction in policy uncertainties may boost sentiment over the medium term.”
On the question of the ringgit, Afiq Asyraf said the softer greenback and lower US yields offer some near-term support for the local unit.
‘We keep our end-2026 US dollar ringgit exchange rate forecast at RM4, though the unresolved Iran situation will keep it volatile,” he said.
Currency analysts said the Democratic sweep could put the dollar on the defensive and cap further upside against the ringgit.
At press time, the price of crude oil was at US$101.92 per barrel, a decline of 1.6% while US equity index futures were also up ahead of the market’s opening as investors appeared to be comforted by the fact that President Trump had seemingly accepted the results.
