US-China trade war drags market lower

External uncertainties such as Fed rate hike get the blame

PETALING JAYA: The local stock market continued to trade lower as sentiment weakened, driven by amplifying trade war woes between the world’s two largest economies.

Yesterday, the performance of regional stock markets was mixed as investors took a wait-and-see stance to digest the situation.

The FBM KLCI was among the Asian losers yesterday, dropping 4.68 points or 0.28% to close at 1,680 points, with 447 counters falling and 351 counters finishing higher.

Japan’s Nikkei 225, Singapore’s Straits Times Index, the Jakarta Composite Index and Hong Kong’s Hang Seng Index were like Malaysia, ending in negative territory.

Meanwhile, shares in the Shanghai Composite Index and South Korea’s Kospi gained marginally.

Kenanga Research said the weak local stock market was primarily dragged down by external uncertainties, including the US Federal Reserve interest rate hike, trade war between China and the US as well as geopolitical tensions.

“Domestic issues aside, we reckon that the weaker market performance was primarily due to external uncertainties,” the research house said in a note yesterday.

It pointed out that the local stock market had bottomed out with limited downside.

“We strongly believe that an immediate rebound from here is highly probable,” Kenanga said.

On a year-to-date basis, the FBM KLCI was down almost 4.5% in comparison to the 7.89% gained in the same period a year earlier.

Kenanga said that recent downgrades in earnings following the recent weak corporate results could had also partially contributed to weak investment sentiment in the market.

The research house has revised down its FBM KLCI earnings to a 5.1% growth for this year compared to 6.1% previously.

Kenanga is bullish on the aviation, gaming, utility and telecoms sectors partly because of the recent selldown.

The ringgit, on the other hand, which recently touched the RM4per-dollar level, continues to weaken against the US dollar. The weakness in the local currency was in line with other regional currencies.

It is noteworthy that the US dollar has been strengthening against the major currencies. The US Dollar Index – which takes into account the exchange rates of a basket of major currencies – had reached its highest level since mid-July 2017, Bloomberg data showed.

According to MIDF Research, foreign funds have withdrawn a total of RM6.82bil from the local stock market in the first six months of the year.

It pointed out that June saw the highest net outflow of foreign funds from Malaysian stocks, reaching RM4.93bil.

“This brings the cumulative outflow in first-half 2018 to RM6.82bil net, offsetting more than half of last year’s total net inflow of RM10.33bil,” MIDF said in its weekly fund flow report.

“Nonetheless, Malaysia still has the second-lowest outflow among the four Asean markets we monitor after the Philippines on a year-todate basis,” it added.