• Global markets fell on protracted trade tension, prompting the KLCI to close at its lowest for the year at 1,610.27, down 27 points versus previous week.

• Net foreign outflow was at RM450.9m, continuing its trend for the 7th straight week. Local retail were active, accounting for 37% of net buying or RM165.7m versus RM20.4m the previous week.

• Net foreign outflow continued to dictate the KLCI’s performance, with YTD selling of RM3.3bn recorded.

• Risk aversion has swept across the markets financial with the heightening US-China trade tariff news likely to dominate headlines in the short term, including its possible impact on economic performance.

Net outflow surpassed RM3bn

The US-China tariff war overshadowed domestic news, pressuring the KLCI to close at the year’s low. On Friday, the tariff rate increased from 10% to 25% on USD200bn in Chinese goods, joining another USD50bn in strategically important Chinese products already taxed at the higher rate. However, the US president did not extend the tariff to all Chinese imports, as he had previously threatened.

Bank Negara lowered the OPR for the first time since July 2016 to 3% from 3.25%. Subdued inflation, high real interest rates and intensifying downside growth risks are some of the factors supporting the rate cut. On corporate news, a proposed Axiata and Digi merger by Telenor lifted local sentiment, with the former rising 14.5% and Digi up by 6.2% for the week. The ringgit continued to fall, to RM4.153 on the OPR cut as lower interest rates could possibly result in capital outflow in the short term. The lower ringgit was also influenced by a decline in Brent crude oil prices, which fell 1.2% to USD70.4/b during the week.

Continued focus on US-China trade and earnings

Risk aversion swept across global markets, as increased global trade tensions made a return last week following weeks of calm. China has not retaliated on the higher tariffs, but more clarity is expected within the next few days, in our view. US stocks rebounded on Friday however as US Treasury Secretary stated that talks continued and negotiators were making progress. We believe trade negotiations will likely continue and possibly some form of agreement in the coming months. However, threats of escalation in trade tariffs and of likely retaliation will increase investor uncertainty and the risk of derailment in the near term.

Source: BIMB Securities Research - 13 May 2019