Volatility keeps investors on sidelines

REVIEW: Coming into the trading week, prospects of a trade war had reached a fever pitch on the back of the tariff announcements made by the United States and China the previous week.

The previous Thursday, US President Donald Trump signed a memorandum that could impose tariffs on up to US$60bil of Chinese imports in addition to the earlier imposition of duties on steel and aluminium.

China announced just hours later that it was retaliating with tariffs on US$3bil worth of US imports, although it also urged Washington to come to the table to negotiate a settlement along with a pledge by Chinese Premier Li Keqiang to ease access to American businesses.

Global growth seemed ready to go off the tracks, and investors pulled their money out of equity markets and riskier assets in favour of safe havens such as the yen.

While Asian markets looked headed for a bruising session, media reports cited sources as saying that there might be a more amicable settlement developing between the two trading giants behind the scenes.

Equity markets retraced some losses, but nevertheless, had witnessed significant declines since Trump’s announcement on Thursday.

On the local scene, the FBM KLCI lost 5.31 points to 1,859.91 amid a broad-based selldown in local equities.

Tuesday’s performance saw a mild rebound in the region as news of talks between the US and China continued to calm markets. Wall Street had already showed confidence in the news the previous night with 2.7% to 3.3% gains in the three major indexes.

The White House reportedly requested China to cut tariffs on imported cars and allow foreign majority ownership of financial services firms as well as buy more US-made semiconductors.

The FBM KLCI followed suit, albeit much more conservatively, rising 2.54 points to 1,862.45.

However, foreign investors showed a clear retreat from the local market as they turned net sellers to the tune of RM101.8mil, a significant pick up from net selling of RM40.4mil a day before, suggesting growing caution over the economic growth story in this part of the world.

By midweek, another issue stemming from the US came to bear on equity markets. Technology companies Stateside had been facing some controversy given the recent revelation that Facebook user data was at the centre of an electoral controversy in India.

Furthermore, Nvidia had also announced that it had put a stop to tests on its self-driving cars on public roads. Nvidia lost about 8% of its share price, while other tech giants Facebook, Twitter, Tesla, and Netflix also saw sharp declines.

Regional markets tracked the declines on Wall Street even as investors fled to the safety of government bonds.

Back home, Bank Negara released its annual report and Financial Stability and Payment Systems Report, suggesting that the country’s economic growth is expected to remain robust over the next two years.

Nevertheless, the local market remained shaken by the developments in the external environment and dropped 4.58 points to 1,857.87 points.

The rout in US tech stocks continued overnight with Amazon, Netflix and Apple pulling back 4.4%, 4.9% and 1.1% respectively. This offset gains in consumer and healthcare counters, pulling the major indexes lower, albeit slightly, after wide-ranging trade.

By the time Asian markets opened, it seemed fears of a global trade war had eased and investors held on to their investments after the previous heavy selling.

However, the FBM KLCI eased slightly over the session, losing 1.52 points to 1,856.35.

On Friday, the FBM KLCI ended the week 7.11 points higher at 1,863.46, lifted by heavyweights Petronas Chemicals, Maybank and Nestle.

Statistics: For the week, the major index was down 1.76 points, or 0.1% to 1,863.46 points on Friday, versus 1,865.22 on March 23. Total turnover for the trading week stood at 10.53 billion shares amounting to RM9.54bil, compared with 10.63 billion units valued at RM10.43bil changing hands over the trading week.

Outlook: Without a clear resolution, it seems that Bursa Malaysia remains at the mercy of developments taking place on the world stage. At the moment at least, there is confidence that the US and China will manage to hammer out a settlement to prevent a fullblown trade war from happening.

The recent rally in oil prices, however, triggered by optimism that Opec supply cuts will continue, will lend a continued boost to exporters of the commodity, even as the ringgit’s gains over the ailing greenback may further attract foreign investment in the absence of further news on Fed-related interest rate hikes. Despite the volatility, the FBM KCI has held quite well above the 21-day simple moving average. At 1,863 points, the index is resting on its immediate resistance level. Session highs on Tuesday and Friday also saw the index move past the 1,865 round figure to flirt with the higher trading range seen in the closing days of the previous week.

Positive news from the external front would be the catalyst needed to give it that nudge out of the current indecision, short of any positive leads to guide investor buying.

The slow stochastic is at 40 points, which is below the 50 mid-point, but rising. The 14-day relative strength index remains healthy at 55 points.