PETALING JAYA: All the uncertainty notwithstanding, the FBM KLCI closed higher yesterday ahead of the United States presidential election, in tandem with most bourses across Asia, as analysts say the other major stateside factor brewing optimism could be expectation of yet another Federal Reserve (Fed) rate cut.
In addition, discussions for stimulus packages in respective regions such as in China and Hong Kong are also holding up markets, as Americans head to the polls later today to decide their 47th president to replace outgoing leader Joe Biden in January.
Head of equity sales at Rakuten Trade Vincent Lau believes institutional local support has beefed up the local index to keep it above the psychological 1,600 points margin, in line with the performance of other markets in the region.
“The Hang Seng Index in Hong Kong has also taken a beating over the last month or so, but has appreciated yesterday along with the Shanghai Stock Exchange as the Chinese government prepares stimulus packages to further rejuvenate its economy,” he pointed out.
Citing Malacca Securities, government news agency Bernama said despite ongoing market volatility, the weaker ringgit at RM4.375 per US dollar could also boost sentiment in export-oriented sectors such as gloves and technology.
“Additionally, the plantation sector is likely to trend positively in line with rising crude palm oil prices, while the oil and gas sector could benefit from the rebound in oil prices amid ongoing tensions in the Middle East,” the research house was quoted as saying.
Lau concurred, before elaborating that global markets perceive a win for real estate mogul Donald Trump to be positive for the dollar, which net-exporters like Malaysia could stand to gain from.
Beyond the election, he said the widespread anticipation that the Fed might decide to lower rates by a further 25 basis points on Friday is also lending support to markets.
On the other hand, with most left-leaning mainstream news channels commenting that the presidential election is “too close to call” at the moment, he cautioned that any lingering uncertainty from the election may weigh down global indexes.
Crucially, while acknowledging that a Trump victory may cause a bigger short-term stir to markets given the former president’s pre-disposition to impose trade tariffs, Lau believes the businessman’s deep dislike for wars and conflicts as well as his proclivity to negotiate could benefit global markets in the longer view.
“Trump is proposing a cut in corporate taxes which would be good for US companies. Moreover, we believe that a stronger US market should also bode well for Malaysia, especially since it is our third largest trading partner,” he observed.
Lau also noted that Malaysian companies, along with the rest of South-East Asia, may continue to benefit from the China + 1 strategy if trade tariffs were imposed by either presidential candidate should they win.
On this note, Malaysia Economic Association president and economics adviser to the government Yeah Kim Leng commented that if Trump were to win the election, he may reduce emphasis on Biden’s pivot to Asia as reflected by the Indo-Pacific Economic Framework (IPEF).
Of interest, Yeah said most Asian nations decry the IPEF as underfunded and lacking in market access unlike a trade agreement as in the case of Regional Comprehensive Economic Partnership, as well as the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP).
He added that Malaysia’s rising trade with China may be negatively impacted should the new president ratchet up sanctions on China to include the latter’s trading partners, although he agreed with Lau that Trump’s campaign promise to impose a 100% tariff on imports from China could divert more trade and investment to Malaysia and other Asian countries.
“The China+1 and Taiwan+1 strategies would become even more important for global firms and multinational companies, thereby benefiting neutral countries like Malaysia and other Asean member countries that are embedded in the global supply chains,” said Yeah.
He further explained that an end to the Russia-Ukraine war will spur a risk-off environment that will greatly benefit the world economy, saying: “In addition to lowering the risk to global supply chains, the reconstruction of the Ukraine and Russian war-torn economies could also provide an impetus to global capital and trade flow, thereby benefitting export-oriented economies such as Malaysia.”
Similarly recognising the gravity of the election, head of regional equity research at RHB Research, Alexander Chia, noted that markets globally are closely tracking its results, with investor sentiment heavily swayed by the potential for either continuity or change in US policy direction.
“In recent weeks, ‘Trump trade’ has driven movements in the US Dollar Index, bond yields, and commodities like gold, with investors anticipating the impact of another Trump term.
“However, the recent recalibration of expectations in response to polling data reflects the market’s sensitivity to the election’s tightening dynamics,” he told StarBiz.
The term “Trump trade” refers to the market movements and investor behaviors that emerge in response to the economic policies and political actions associated with a Donald Trump presidency.
Chia is expecting heightened volatility in the short term, as market participants await the final certification of results, which may extend beyond November 5.
Like Lau, he said an election outcome that remains contested or unclear could raise concerns about the stability of the transition process.
“We see market concerns around transition dynamics and, potentially, a recalibration of US economic and foreign policies, which would influence global risk sentiment,” he added.
Chia opined that Trump’s policy approach has historically injected a level of unpredictability into global markets, particularly around trade and economic sanctions, which have broad market implications for emerging markets and Asian economies.
“Conversely, a Kamala Harris presidency would likely signal a shift toward multilateralism. Such a scenario could gradually return stability to the global scene and support equity markets over the medium term, as investors look to a more predictable policy backdrop and the potential for international cooperation on key issues,” he said.
Aside from the FBM KLCI, among bourses that closed higher yesterday included Singapore’s STI, the Hang Seng, Australia’s ASX, South Korea’s Kospi and the Shanghai Stock Exchange, while the Jakarta Composite Index and the SET Index of Thailand retreated.
