Market set to see deeper correction
Bursa Malaysia and the benchmark FBM KLCI is poised for a lower low for the time being as the odds of a recession in the United States has risen due to the impact of Trumps tariffs, a pause in the Federal Reserve rate normalisation and resulting weaker consumer and business confidence.
Following a rout on US markets overnight, the FBM KLCI fell some 16.3 points or 1.06% to 1,520 points at close yesterday, a one-year low as nervous investors moved into risk-off mode.
With the exception of China, the rest of Asia saw heavy losses weighed by markets in Japan’s Nikkei 225 which declined 0.64%, South Korea’s Kospi that fell 1.28%, Singapore Straits Times Index which lost 1.76% and Taiwan’s Taiex that fell 1.73% at the time of writing yesterday.
Analysts said the ongoing sell-down on the local market is also due to the threat of reciprocal tariffs by the United States starting next month, much to the chagrin of the rest of the globe, including Malaysia.
While this remains unresolved at the moment, its fuelling the fragile risk-off appetite as investors shy away from any aggressive positionings for the time being.
Further developments here can potentially have a cascading effect on other areas including an unexpected drag on corporate earnings since the uncertainty could see companies pulling back or slowing down capital expenditure plans moving forward.
With the threat of tariffs, sentiment is poised to be bearish for the time being, said iFAST Capital Sdn Bhd senior research analyst Kevin Khaw Khai Sheng.
“A swift recovery for Bursa Malaysia appears unlikely. The looming US recession risk and the reciprocal tariffs next month are poised to sustain market volatility.
“The tariffs, likely tied to US trade policies, could trigger another sell-off, especially if they disrupt supply chains or provoke retaliatory measures. The recent sell-off reflects a broader risk-off mode, and these external shocks suggest more pain in the short term,” Khaw told StarBiz.
But he points out this is not the beginning of a “long bear market”, instead it is just a pullback as investors start to price in the uncertainties from the new US government.
“Corporate earnings wise, we expect the exporters and manufacturers might be more cautious in expanding or investing into their businesses amid the current scenario, hence a slight pullback might happen in the next few quarters.
“Investors must take a step back, since Trump’s policies are well-known to be unpredictable, hence today’s sell-off might be tomorrow’s rebound,” Khaw added.
He warned the next few months will likely remain volatile for Bursa Malaysia although Malaysia has some buffers through its economic resilience based on statistics.
“Sadly, despite this, the Malaysian economy and Bursa Malaysia are still vulnerable to a potential US recession and the reciprocal tariffs in April 2025, with exports and market sentiment at risk.
“While a near-term V-shape recovery for the local exchange seems unlikely, Malaysia’s economic fundamentals and policy efforts provide some resilience,” he said.
“Over the longer term, these strengths could support a recovery, but the next few months will likely remain turbulent,” he said.
Technically, a chartist with a local brokerage said the charts suggest a downtrend has been formed and any correction in the local market could be temporary with support now seen at the 1,500-point levels for the FBM KLCI.
He said the Nasdaq is now in correction territory, and may be set to undergo a deeper correction as the earnings outlook weakens, which will impact investors sentiment here as well.
In its strategy report titled “Bloodbath Deepens As Slowdown Fears Intensify; Stay Defensive”, UOB Kay Hian (UOBKH) Research said it continues to anticipate a potential softening in the Trump administration’s stance on tariffs by April.
But it noted Malaysian investors are expected to remain in a defensive stance as relentless foreign equity outflows persist.
“With global uncertainties mounting and risk-off sentiment dominating, investors are likely to prioritise capital preservation over aggressive positioning.
“As such, defensive stocks which are characterised by low beta, relatively low foreign shareholding and resilient business models – are expected to be favoured,” UOBKH Research said in its report.
Tradeview Capital chief executive officer and founder Ng Zhu Hann said this present sell-down on Bursa is “not yet” a bear market since the broader economic outlook remains unchanged.
“Last year I highlighted there will be correction especially in the United States, but I didn’t expect Malaysia will be so badly impacted.
“Our markets aren’t overvalued as the FBM KLCI is now at some 14 to 15 times price to earnings ratio which is below the median,” Ng said.
He highlighted the magnitude of the current sell-down: “Foreign fund outflows totalled some RM6.6bil in the first 2½ months of the year. Last year, full-year outflows were at RM4.2bil.”
At this juncture, Ng did not expect corporate earnings to be impacted, and a weakening if any, will likely be due to domestic demand normalising from the earlier festive months.
“For the technology sector it is different as they rely on export markets – the United States especially, with coming tariffs threat.
“In the broader sense, the economy here is resilient and there is no reason why we should trade at such valuations. But the markets are not rational,” Ng said.
He said there is a possibility that foreign funds could flow back into the region, including Malaysia, in the second half of the year.
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