US-China trade war escalates
Asian markets see red as both countries unveil new tariff lists
PETALING JAYA: The trade war between the world’s two largest economies has moved up a gear after more goods were added to the United States and China’s tariff lists.
Markets in Asia reacted badly yesterday to the tit-for-tat reaction by China after digesting news that US President Donald Trump had proposed to impose even more tariffs on China products used for robotics, information technology, communications technology and aerospace.
As Asia awoke to the news of American tariffs, China retaliated by unveiling more tariffs on 106 US products.
It is estimated that these trade tariffs would target up to US$50bil of US products annually and includes a 25% levy on US products such as soybean, beef, cars and whisky.
The markets have understandably reacted negatively to this development, with the US stock market futures indicating a firmly negative open.
Markets in Asia were slammed by news of the tariffs and ended in broadly negative territory yesterday.
At home, the FBM KLCI entered its third day of losses yesterday and these losses widened after the lunch break, with market breadth showing losers outnumbering gainers by a huge proportion of 10 times.
The benchmark index closed the day 34.84 points or 1.88% lower to 1,815.94, with volume picking up to 3.27 billion shares valued at some RM2.78bil.
The ringgit was largely unaffected by the news, trading nearly unchanged as at press time at 3.8688 to the US dollar.
Hang Seng Index linked put-warrants were the main big gainers on Bursa Malaysia, while the big losers were KESM Industries Bhd, down RM3.06 to RM14.48; Dutch Lady Milk Industries Bhd, down RM1.60 to RM66.20; and Petron Malaysia Refining & Marketing Bhd, down RM1.19 to RM7.01.
Losses were broad-based and affected the entire market, a dealer said.
Fund management firm Areca Capital Sdn Bhd’s chief executive officer Danny Wong told StarBiz that the decision for China to impose tariffs on US soybean could be a positive catalyst for palm oil-linked stocks.
“If China carries through with the decision to go ahead with these additional tariffs on products such as soybean, then soybean oil would be more expensive in China and there would be a switch to a close alternative of palm oil,” Wong said.
This would invariably mean better export figures for palm oil companies that would benefit them,” he added.
Dealers said that the markets were now witnessing some sort of a panic trading, and this could persist in the near term until the dust eventually settles and the situation stabilises. “We may see a spike in volatility in the days ahead,” a dealer noted.
Wong said that in such a situation of a fullblown trade war, investors might want to relook their trading strategies as things may change once again.
“Indirectly, tech companies here will be affected. Having said that, there is not much of choice because these (US tech companies) will still have to import. And people have to know that at the end of the day, it is the consumer and businesses which would suffer,” he said.
Technology stocks on Bursa Malaysia continued to bleed yesterday, with the Electronics Manufacturing Services-type companies posting declines. These stocks include Globetronics Technology Bhd, down 42 sen to RM3.60; Vitrox Corp Bhd, down 41 sen to RM4.91; and Elsoft Research Bhd, down 26 sen to RM2.24.
Wong said that while there were losers to the new trade war environment, certain sectors could also see a turn in fortunes.
“On this new trade war outlook, we could see a pause in the plans to raise interest rates until a clearer picture emerges, as investors will start thinking that global growth might be affected. This could see bond prices picking up and yields falling. With this in view, we may see real estate investment trusts and dividend-paying counters coming back into favour,” Wong added.