Asian stocks in sea of red as US-China trade dispute escalates

PETALING JAYA: Bursa Malaysia, together with the rest of the Asian markets, sank today as the US-China trade war escalated and the Chinese yuan weakened to a low in more than a decade.

The local bourse opened lower with the FBM KLCI at 1,621.12 points, 5.64 points down from Friday’s close of 1,626.76. The benchmark index closed at an intraday low of 1,610.41 points, shedding 16.35 points.

The Bursa scoreboard showed 827 losers and 163 gainers, with 897 counters unchanged, at the end of trading today.

All sectoral indices were down, with the worst performer being the energy index which fell 2.59% or 28.08 points to close at 1,055.75.

Meanwhile, on the currency market, the ringgit slid to a six-week low as the China’s yuan broke the psychological 7-per-dollar level. Based on Bank Negara Malaysia’s (BNM) middle rate, the ringgit continued to weaken by 0.5% against the US dollar to 4.1775 today from 4.1565 last Friday.

On the regional stock markets, Hong Kong’s Hang Seng Index and South Korea’s Kospi Index slumped more than 2% each.

Last week, US President Donald Trump said he would impose 10% tariffs on US$300 billion (RM1.25 trillion) worth of Chinese imports. The abrupt announcement was made on Twitter last Friday after a trade war truce which lasted about a month, and China has vowed to retaliate.

The additional 10% tariff is on top of the 25% tariffs already imposed on some US$250 billion of goods imported from China.

Hong Leong Investment Bank (HLIB) Research said the negative spillover to Malaysia could be in the form of a reduction in gross domestic product (GDP) growth by up to 1.1 percentage points (ppt).

“As a small open economy, Malaysia will not be insulated by the escalating trade tensions. Based on BNM’s estimation, a 25% tariff on remaining trade with China and blanket auto tariff would lead to reduction of Malaysia’s GDP growth by 0.9 to 1.1 ppt, with the impact of US-China trade accounting for about half of that,” it said in its report yesterday.

As the trade war continues to prolong with the possibility of worsening, the research house expects BNM to reduce the Overnight Policy Rate (OPR) by 25 bps to 2.75%, which is the lowest since March 2011, as early as November 2019.

HLIB Research also revised downwards its 2019 average ringgit assumption to 4.15-4.20 against the US dollar from 4.05-4.15 previously. This implies a depreciation bias for the remainder of the year.

“This comes on the back of heightened risk aversion with US-China trade tensions potentially evolving into a full blown trade war, possibility of yuan depreciating and revision in our OPR expectations from unchanged to 25bps cut,” it added.

Meanwhile, S&P Global Ratings said the latest development is a negative for global business confidence and could compound weakened global investment growth and economic prospects if the additional tariffs go into effect on Sept 1.

“We reiterate our view that the first-order impact on credit is generally low to moderate for issuers in both countries. We hold this view even in the scenario of both countries imposing tariffs of 25% in all goods imported from each other.

“Both countries have diversified export markets. Their own domestic markets are very large and businesses still cater to them, and a large number of rated corporates still have some flexibility in managing their costs, including, in some cases, the option of passing on the additional expense from tariffs to customers,” it said in a statement today.

While the short-term impact of higher tariffs is manageable for both countries, S&P said the longer-term effects on growth prospects could be greater.

“The recent reaction in equity markets reflects this risk. This in turn could dampen the investment appetite and have a flow-on effect to credit markets,” it added.

source https://www.thesundaily.my/business/asian-stocks-in-sea-of-red-as-us-china-trade-dispute-escalates-BI1219146