TA Sector Research

Weekly Strategy - 3 Feb 2025

sectoranalyst
Publish date: Mon, 03 Feb 2025, 08:56 AM

Subdued Market Post Implementation of Trump’s Higher Tariffs

The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) suffered mostly losses last week amid thin trade as investors were kept sidelined by the Chinese New Year holidays. The local blue-chip benchmark was also dragged down by selloffs among index heavyweights in the construction, utility and technology sectors spurred by uncertainties surrounding global AI dynamics and local data centre projects after the launch of powerful and low-cost Chinese AI technologies rattled investors’ faith in U.S. leadership and profitability in AI.

Week-on-week, the FBM KLCI dropped 16.81 points, or 1.07 percent to 1,556.92, as dips on YTL Power (-48sen), YTL Corp (-21sen), Sunway Bhd (-20sen), Gamuda (-15sen) and Maxis (-10sen) outweighed gains on Sime Darby (+7sen) and TM (+10sen). The average daily traded volume last week declined to 2.14 billion shares versus 3.12 billion shares the previous week, while average daily traded value also fell to RM2.1 billion, against the RM2.62 billion average the previous week.

Market sentiment is likely to remain subdued this week as investors stay cautious due to threats of US tariffs, uncertainties surrounding artificial intelligence, and the trajectory of US interest rates. Last Saturday, US President Donald Trump signed an order imposing 25% tariffs on imports from Mexico and Canada, as well as a 10% duty on China. Due to the heavy reliance on energy sources from Canada and its impact on domestic prices, the tariff imposed on related products was set lower at 10%. To mitigate retaliations from these countries, the new order also included a warning that tariffs would escalate if they react in any way against the US, but the deterrence didn’t work.

Canada announced that it will impose 25% counter-tariffs on C$30 billion worth of American alcohol and fruits effective tomorrow, and another C$125 billion worth of American-made products later this month, allowing Canadian companies adequate time to adjust their supply chains and find alternatives. Mexico has announced that it will implement tariff and non-tariff measures on American imports to defend its interests, while China said it will bring the matter to the World Trade Organization. The U.S. onslaught could continue, as Trump is also contemplating tariffs on computer chips, steel, oil and natural gas, as well as copper, pharmaceutical drugs, and imports from the European Union. These moves will raise inflation, lower consumption, affect the global supply chain, and dampen economic growth. Therefore, investors are likely to remain cautious this week and watch closely how this development unfolds.

The US labour data, including nonfarm payroll, unemployment rate, and average hourly earnings for January, will be in focus this week after inflationary pressures remained elevated in December. Data released last Friday showed that the personal consumption expenditures price index (PCE) rose by 0.2 percentage points from November to 2.6% year-over-year, while core PCE remained at 2.8%, underscoring the U.S. Federal Reserve’s decision to maintain interest rates in last week’s meeting. Strong labour data will continue to underpin concerns about elevated inflationary pressures amidst the ongoing trade war. In China, the Caixin PMI this week will reveal more information about the health of the economy, while investors continue to speculate on government measures in the next politburo meeting in March to boost domestic consumption against the soft outlook for exports.

Source: TA Research - 3 Feb 2025

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