After a good April, the month of May saw a decline in global stock markets across all major regions. This followed a new escalation of trade tensions between the US and China. Meanwhile, economic news was mixed in several major economies. Besides, there were political noises such as Brexit and elections. In summary, the markets were dragged down by these news as market participants were concerned about the possible impact on the economy and companies’ earnings. Meanwhile, global government bonds benefited as investors turned towards safe havens, while riskier assets underperformed. This led to a risk-off environment that saw investors favour lower risk assets such as government bonds rather than equities.

Going forward, external headwinds will continue to remain high in the cards over the next couple of months. The limelight will be on the Fed’s monetary policy meeting. In the meantime, the focus on trade issues will continue to remain one of our major story lines in the near term. Geopolitical risk is also on the rise, more so with the tension between the US and Iran. The current tension between these two countries resembles more of the second oil shock scenario in the late 1970s as opposed to the first oil shock in 1973.

All these point to more downside risks on global growth. With global volatility remaining strong and room for it to intensify is high, we foresee a greater appetite for safe haven assets with riskier assets likely to underperform. As Malaysia is a trading nation, the ongoing external headwinds together with domestic challenges will continue to add pressure on our downside risk. Hence, we have revised our risk volatility for the ringgit as well as bond yields.

A. Highlights

• After a good April, the month of May saw a decline in global stock markets across all major regions. This followed a new escalation of trade tensions between the US and China. From 10 May, the US raised the tariff rate on US$200bil worth of Chinese imports to 25% from 10%, and announced that it may impose a 25% tariff on the remaining US$300bil of Chinese imports. China retaliated by increasing the tariff range to 5–25% from 5–10% on US imports worth US$60bil.

• The US administration blacklisted Chinese tech giant Huawei on security fears. It then made a surprise announcement that it will impose a new tariff of 5% on all Mexican imports in a bid to force the Mexican government to stem the flow of migrants entering the US across its southern border starting in June. These tariffs would increase over time if Mexico do not reduce the number of undocumented immigrants travelling from Mexico to the US.

Source: AmInvest Research - 25 Jun 2019