SELLOFFS MAY CONTINUE TILL YEAR-END

Investors to stay cautious despite recent truce to US-Chine trade dispute, says Moody’s official

SELLOFFS in Malaysia’s equity market may continue at least until yearend as the trade dispute between the United States and China is expected to linger further, say analysts.

Moody’s Investors Service credit strategy and standards managing director Atsi Sheth expects US-China relations to remain contentious despite a truce announcement at the recent Group of 20 meeting temporarily de-escalating hostilities between the world’s two largest economies.

Asia’s economies that are deeply integrated in regional and global tech and trade chains, such as Hong Kong, South Korea, Malaysia, Singapore, Taiwan and Vietnam, were most exposed to significant and lasting disruptions to trade and investment arising from the dispute, he added.

The tension has led investors to flock to safe-haven assets, including government bonds, the yen and gold.

It was reported that offshore investors marked their fourth straight week of selling on Bursa Malaysia as they sold RM244.5 million net of local equities last week.

The net outflow was the highest in five weeks and roughly four times the amount withdrawn in the preceding week.

Atsi said narrow agreements and modest concessions in the ongoing US-China trade dispute would not bridge the wide gulf between their respective economic, political and strategic interests.

“As the world’s two largest economies, the US and China are too strong to cede their respective national interests in negotiations with each other.

“However, an economic cold war that leads to decoupling would be costly for both countries, owing to their deep links with each other. Therefore, relations between the two powers will swing between conflict and compromise,” he said.

Atsi said the impact would be felt at the global, country, sector, and company level.

“Continued tensions would disrupt global trade, erode the effectiveness of the multilateral international trade regime and dampen growth.

“As every new development is reflected in financial markets, it will affect valuations and borrowing costs for many debt issuers.

“At the sovereign level, we are watching growth, investment and policy responses along with confidence indicators, such as capital flows and exchange rates,” he said,

At the sector and company level, possible changes in trade, supply chains, investment and competitiveness would affect revenues, costs, profits and leverage, he added.

AmBank group chief economist and head of research Dr Anthony Dass said the temporary halt was not a suspension of the trade war but a suspension of the escalation of the tensions.

“The big questions remain about the readiness of China in allowing international access to its huge market to a level that will please the US administration and hence prompt the US to completely halt the trade war,” he said.