PETALING JAYA: Defensive stocks took prominence in yesterday’s trade, a day before the reciprocal tariff policy by the United States was to be announced.
Headline gains on the FBM KLCI masked the weaker market sentiment and volumes as Asian benchmark indices showed mixed trading while European stocks declined at their open.
US President Donald Trump was reported as saying the reciprocal tariff policy announcement will be “the big one” and it will start with all countries at once.
According to Trump’s press secretary Karoline Leavitt, the policy will be effective immediately.
It also suggests that many countries with their own duties on US goods could suddenly face new trade barriers, CNBC reported.
On the local market, the FBM KLCI gained 12.87 points or 0.85% to 1,526.52 with losers outnumbering gainers by slightly over two times while 428 counters were unchanged on volumes of 2.37 billion shares valued at RM2.03bil.
Defensive names mainly exposed to the domestic economy such as Tenaga Nasional Bhd, Malayan Banking Bhd
, MR DIY Group (M) Bhd, Telekom Malaysia Bhd and Prolintas Infra Business Trust saw some gains in yesterday’s trade.
Analysts noted that the yields on these stocks mostly exceeded 4% and may see further gains on safe haven flows with the broader and less then certain environment now.
Export-oriented energy and technology stocks continued to see weakness while financial services, telecommunications and utility stocks saw gains in yesterday’s trade.
The reciprocal tariff announcement may also worsen the trade war that could affect final demand for oil, analysts said, noting that Brent crude oil could test its March lows of US$69.30 if so.
Clarity may come later on but it appears the markets are bracing for maximum impact to play out in the near-term from the reciprocal tariff announcement.
Managing partner at SPI Asset Management Stephen Innes said the markets are generally bracing but still arguably underpricing the scale and shock potential of what’s coming from the Trump reciprocal tariff announcement.
“Markets are underpricing the tariff risk. A lot rides on the tone, scope and exemptions in today’s rollout.
“Expect fast repricing – and keep dry powder ready. We’re not just watching for tariffs – we’re watching for tremors,” he said in a market commentary.
“It’s better to stay nimble, reactive and sharp. The best market parallel in my career? Lehman weekend, September 2008. Traders left their desks that Friday knowing everything could change if Lehman wasn’t saved by Monday.
“It wasn’t. And the consequences didn’t hit all at once. They cascaded through the week – starting with disbelief, then panic, then policy pivot,” Innes added.
This morning’s reciprocal tariff announcement or also known as Liberation Day in America could follow a similar arc, he noted.
“A shock-and-awe rollout could alter the DNA of global trade. Or, it might be a theatrical chest-thump that fizzles in a news cycle.
“Liberation Day may be the starting gun for a multi-week volatility wave. Or it may be the non-event that tees up the next real policy pivot.
“Either way, the smart play right now isn’t prediction. It’s precision,” Innes said.
According to TA Research, there are concerns about any retaliation to the announcement, which could affect global trade, supply chains and demand as inflation rises.
Additionally, Trump has warned of increased tariffs on countries that retaliate.
A recovery on the headline benchmark index could come in the second half of this year, TA Research said.
“Market volatility will persist in the second quarter of 2025 due to reciprocal tariffs and reactions from affected countries. However, we believe most of the negative news has already been priced in when the FBM KLCI hit a low of 1,478.84 in March,” TA Research said.
“Looking ahead, we expect clarity to emerge in the second quarter of 2025 following the conclusion of key events that could contribute to the benchmark index’s recovery in the second half of 2025,” it added.
The research house maintained its 2025 FBM KLCI target of 1,785 points, based on 15.1 times 2026 earnings, with any downside risks from the outcome of the United States reciprocal tariff policy.
“This target takes into consideration the current undemanding valuation of 12.8 times 2026 price to earnings ratio compared to its long-term average of 16 times. The recent low on March 11 serves as immediate support,” it said.
This also takes into account the sizeable net foreign outflow of close to RM10bil that was seen in the first quarter of 2025.
It also expects the global geopolitical and trade frictions to see some sort of stabilisation in the months ahead and this could provide some support for economic growth in Malaysia.
“Locally, the government is committed to economic growth measures, bold fiscal reforms, and structural changes to boost the nation’s competitiveness.
“The 13th Malaysia Plan, to be announced in July, should provide more clues on nation-building and commitment to various long-term plans that have succeeded in attracting significant investments in high-impact sectors, positively affecting economic and business activities,” TA Research said.
These measures underscore our expectations for the Malaysian economy to register 5% growth this year and it may potentially sustain around this level for the country to attain developed-nation status by 2028.
This is seen to positively influence corporate earnings of the FBM KLCI component stocks, which TA Research expects to grow by 5.7% and 8.5% in 2025 and 2026.
It implies a price to earnings of 13.7 times and 12.8 times respectively.
“We view any weakness in Malaysian equities as an opportunity to accumulate undervalued blue chips, domestic plays, and defensive stocks to ride through any volatility in the second quarter of 2025.
“We favour the banks among the undervalued blue chips as a proxy to Malaysia’s resilient economy,” it said.
Meanwhile, TA also points out the construction and property companies as viable domestic plays while the consumer, power and utilities, and telecommunications sectors as more stable and less sensitive to economic cycles.
