KUALA LUMPUR (Aug 5): The FBM KLCI closed 16.35 points or 1.01% lower, while small market capitalisation (small cap) stocks fell by larger quantum, amid the spectre of a protracted trade war, after US President Donald Trump said the US will impose a 10% tariff on the remaining US$300 billion of Chinese imports.
 
Such sentiment hit the ringgit after China allowed the yuan to weaken past the key 7-per-US dollar mark on Monday, for the first time in more than a decade, in an apparent response to Trump's tariff threat. 

At Bursa Malaysia, the KLCI closed at its intraday low at 1,610.41, while  the small cap index fell 294.23 points or 2.2% to 13,080.16, after major Asian stock indices ended substantially lower.

In China, the Shanghai Stock Exchange Composite closed down 1.62%, while Hong Kong’s Hang Seng fell 2.85%. Elsewhere across Asia, Japan's Nikkei 225 dropped 1.74%, while South Korea's Kospi fell 2.56%. 

In currency markets, the ringgit weakened to 4.1785 versus the US dollar at the time of writing, as China's stance led to expectation of a currency war in the form of competitive devaluation among trade-dependant nations to preserve their export competitiveness. 

Reuters reported that Asian shares suffered their steepest daily drop in 10 months on Monday, as Sino-U.S. trade friction sent the yuan slumping to a more-than-a-decade trough and stampeded investors into safe harbours, including the yen, bonds and gold. 

It was reported that markets have been badly spooked since Trump abruptly declared he would slap 10% tariffs on US$300 billion in Chinese imports, ending a month-long trade truce. China vowed on Friday to fight back.

China's yuan burst beyond the psychological 7-per-dollar threshold, in a move that threatened to unleash a whole new front in the trade hostilities — a currency war, according to Reuters.

In Malaysia today, TA Securities Holdings Bhd senior technical analyst Stephen Soo told theedgemarkets.com that Trump’s announcement on the US' new tariff threat on China had significantly impacted global currencies and broader financial markets.

Taking into account the spectre of a currency war and existing geopolitical issues impacting crude oil prices, Soo noted that the KLCI, as well as world stock markets, are expected to see more losses ahead.

“I believe that it will be a negative week, unless there is some kind of truce between the two largest economies, but this seems unlikely,” Soo said.

Across Bursa Malaysia today, the exchange saw 2.67 billion shares, worth RM1.86 billion, traded. There were close to 700 decliners versus some 170 gainers.

Among the KLCI's 30 components, Genting Malaysia Bhd was the biggest percentage decliner, after the stock closed 14 sen lower or 3.73% down at RM3.61, followed by Petronas Chemicals Group Bhd.

Petronas Chemicals fell 20 sen or 2.69% to RM7.23.