KUALA LUMPUR: Technology stocks were among the worst hit on Bursa Malaysia after the US announced tariffs on Chinese imports last week, and this could be a prelude to a decline in tech companies’ earnings, particularly semiconductor players.
“There is a potential impact on the earnings of electrical and electronics (E&E) stocks from the tariffs,” said Danny Wong, chief executive officer of Areca Capital, noting that 10% to 12% of Malaysia’s E&E exports are to China.
Tracking the plunge in global tech stocks, the Bursa Malaysia Technology Index was down by 3.12% to a 10-month low of 33.19. In comparison, the FBM KLCI lost 11.65 points or 0.62% to 1,865.22, just a day after hitting a three-and-a-half-year high of 1,876.87. The small-cap index fell by 272.56 points or 1.56%.
Lee Heng Guie, executive director of the Socio-Economic Research Centre (SERC), said Malaysian industries involved in China’s supply chain of E&E products and technology could be affected by the tariffs, which are concentrated on alleged intellectual property theft by Beijing.
The trade war fears add more pressure on semiconductor-related counters, which have been on a decline lately, following news that Apple’s sales were not brisk as expected.
Some Bursa-listed semiconductor counters have tumbled more than 20% year-to-date (see table).
Last Thursday, US President Donald Trump hit China with tariffs of up to US$60 billion (RM235.2 billion) of imports, accusing Beijing of “tremendous intellectual property theft” and sparking fears of a trade war between the world’s two largest economies which could derail global growth.
US trade representative Robert Lightizer said the new measures against China will primarily target certain products in the technology sector where Beijing holds an advantage over Washington, and will include restrictions on Chinese acquisitions and investments.
China has already hit back with tariffs of 15% to 25% on 128 US products, including pork, recycled aluminium, steel pipes, wine and fruits, with an import value of US$3 billion.
Global equities witnessed another round of heavy selldown as investors panicked on the announcement by Trump. Shanghai, Shenzhen, Tokyo and Seoul were among the hardest-hit bourses.
How long the global equity rout will last remains an open question, said Ang Kok Heng, chief investment officer of Phillip Capital, who noted that fear has been driving the market down.
SERC’s Lee said worries would now be focused on the “missing parts” of the announcements, which include what exactly the US seeks to impose tariffs on.
“There is also concern over whether the list of countries the US is imposing tariffs against will get longer,” he said, pointing out that Malaysia is among the countries Trump has called out as being responsible for the US trade deficit.
Trump has indicated that the proposed tariffs will be the “first of many”. These come on the back of tariffs that have already been announced on washing machines, solar panels, steel and aluminium.
Little economic impact foreseen
SERC’s Lee does not foresee a strong degree of economic impact from the newly announced US tariffs.
“On the surface, the potential impact looks small and manageable for both China and the US,” he said, highlighting that the tariffs target only 2.3% of China’s total exports and less than 10% of Chinese exports to the US.
Areca Capital’s Wong noted that the trickle-down impact on the Southeast Asian region is expected to be even lower.
The measures are “less aggressive than initially feared”, according to Morgan Stanley, which expects the tariffs to have a “relatively moderate impact” on China’s growth prospects.
“This could weigh down China’s export growth by 0.7% to 0.9%, translating into a drag of 0.12% to 0.14% on gross domestic product (GDP) growth considering the spillover effects,” the research house said in a note, citing its chief China economist Robin Xing.
Meanwhile, the exemption of the EU, Argentina, Australia, Brazil and South Korea from the US’ steel and aluminium tariffs means around 50% of the US’ steel and aluminium imports are now exempt from tariffs, Morgan Stanley said.
Malaysia could, in fact, stand to benefit if it is able to fill the vacuum in Chinese exports to the US, said Phillip Capital’s Ang, who said the tariffs might be a “blessing in disguise” if the US does not revert to internal producers.
Lee pointed out that Malaysia’s plantation sector could also gain if China goes ahead with plans to restrict imports of US soybeans, which it imports for cooking oil and animal feed.
However, a report last Friday by Nomura highlighted US trade protectionism and a sharper-than-expected slowdown in China as bigger risks to the Malaysian economy, as exports account for 71% of GDP.
“We estimated Malaysia’s ultimate exposure to the US — including via intermediate goods to China for assembly into final products destined for the US — at 10% of GDP, about half of which is in electronics products,” the research house said, adding that another 8% is exposed to China’s final demand.