KLCI plunges as Huawei sanctions seen escalating trade war

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KUALA LUMPUR (May 16): The FBM KLCI closed down 12.24 points or 0.76% today after news on US sanctions on China-based telecommunication group Huawei Technologies Co Ltd led to anticipation of escalation in the China-US trade war.

The ringgit strengthened sharply after annoucements on Malaysia's first quarter 2019 (1Q19) economic growth numbers and the central bank's initiatives to enhance market liquidity and accessibility.

At 5pm today, the KLCI closed at 1,599.19, its intraday low, after plunging in the final trading minutes. At a glance, the KLCI plunged after 11th-hour selling in shares of KLCI stocks including Nestle (M) Bhd.

According to Areca Capital Sdn Bhd chief executive officer Danny Wong, the current volatility is here to stay until there is a concrete resolution in the trade war between the US and China. Wong said that currently, external headwinds are at play.

“The trade war is still there, you never know how it will develop. Things are still uncertain and volatility will continue to stay until the two [China and the US] decide to sit down and sign anything,” Wong told theedgemarkets.com.

US sanctions on Huawei hit world market sentiment. Reuters reported that Asian shares struggled to find their footing on Thursday as confidence was shaken after the US government hit Chinese telecoms giant Huawei with severe sanctions, threatening to further strain Sino-US trade ties. It was reported that Asian shares had steadied in early trade on news that US President Donald Trump was planning to delay tariffs on auto imports, providing much needed relief to markets hit by a flare-up in trade tensions and weak US and Chinese economic data.

According to Reuters, late on Wednesday, the US Commerce Department said it was adding Huawei and 70 affiliates to its "Entity List" — a move that bans the company from acquiring components and technology from US firms without Government approval.

Across Bursa Malaysia today, 2.03 billion shares worth RM1.71 billion were traded. Top decliners included Nestle, which closed down 30 sen at RM145.30.  

The most-active counter was Leong Hup International Bhd, which was listed today at RM1.10. Leong Hup closed unchanged at its RM1.10 issue price with some 215 million shares traded.

In currency markets, the ringgit appreciated sharply against the US dollar to the strongest intraday level at 4.1565 after Bank Negara Malaysia (BNM) said today the country's 1Q19 gross domestic product (GDP) grew 4.5% from a year earlier. Economists said Malaysia's 1Q19 GDP growth had beaten market forecast.
 
BNM also announced market liquidity and accessibility enhancement initiatives, which include measures to improve repo market liquidity and flexibility besides the delivery mechanism for Malaysian Government Securities futures settlements.

UOB Group wrote in a note today: "Real GDP rose 4.5% y/y in 1Q19, slower from 4.7% in 4Q18 though a tad higher than ours (4.4%) and Bloomberg market estimates (4.3%). The moderation is in line with other regional peers which recorded weaker-than-expected GDP prints in 1Q.

"The decent headline GDP and stronger current account surplus in 1Q19, as well as measures to support market liquidity and accessibility helped to strengthen the ringgit. At the time of writing (1:30pm KL time), USD-MYR edged below 4.16 after hitting a high of 4.1751 yesterday," UOB Group said.