FBM KLCI set to remain range-bound
PETALING JAYA: As the world at large heaved a sigh of relief at the conclusion of the United States-China trade discussions in London on Tuesday, attention has turned back towards Malaysian equities, as investors wonder what is in store for the FBM KLCI.
This is especially relevant given that Malaysia has yet to conclude its own trade talks with Washington as the former continues its effort to reduce the 24% hitherto provisional tariffs that were imposed on April 2 by US President Donald Trump.
Most analysts, however, are of the view that at the very least, the conclusion of trade meetings between the United States and China have put paid to any foreseeable escalation of trade tensions between the two superpowers in the near term, and while cautious sentiments still surround the FBM KLCI, the benchmark index should perform better in the second half of financial year 2025 (2H25).
Rakuten Trade head of equity sales and analyst Vincent Lau believes that the announcement from US Treasury Secretary Scott Bessent that the Trump administration may extend the 90-day tariff pause on some countries in order to continue trade negotiations, signals further goodwill.
'We feel things can only improve from here, and 2H25 could be stronger for the FBM KLCI following slightly underwhelming 1Q25 corporate results, especially if Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz can conclude a deal with the Trump administration promptly in next week's talks,' he told StarBiz.
As such, Lau acknowledged investors could still adopt a wait-and-see approach over the next week, which has caused the FBM KLCI to lag behind other regional and global bourses, predicting that the index could trade between 1,520 and 1,550 points in the third week of June.
He said this is because investors may still be concerned that Malaysia is largely an export-driven market, as businesses are also taking time to adjust to the impact of the expanded sales and services tax (SST) that will come into effect on July 1.
On the other hand, he opined that with the European Central Bank having reduced rates by 25 basis points this month, and Bank Negara and the US Federal Reserve also considering a similar move within the next quarter, funds are ready to return to the market.
Lau added that the SST broadening by the government is necessary, which would assure investors that the current administration is serious in improving its tax revenue.
Of interest, Areca Capital chief executive Danny Wong commented that the US-China trade tension may not have been as bad as have been portrayed in the mainstream media in recent months, given this week's developments.
'If both sides willingly continue to resolve these tariff issues, we believe the FBM KLCI will recover significantly. Short-term outlook remains dependent on news, but we now see an upside bias.
'As suggested, developing markets including Asian bourses are expected to perform better in 2H25,' he told StarBiz.
While also expecting a gradual recovery for the FBM KLCI in 2H25, Tradeview Capital chief investment officer Nixon Wong is predicting the index to trade 'neutral' range-bound, as investors take to the sidelines as they wait for conclusive trade talk updates between Putrajaya and the Trump administration.
'However, signals from China and the United States have been stable and less hostile for the time being.
'We should see gradual recovery in the last six months of 2025 as business sentiment may recover, and fund flows may be more risk-on after getting more details and clarity on the US trade policies after mid-July,' he said.
Meanwhile, a head of research and analyst at a foreign brokerage firm is projecting for the premier index to trade within a narrow range of 1,510 to 1,530 for this week, reflecting cautious optimism from the Washington-Beijing trade truce, but tempered by uncertainty in the US-Malaysia talks.
'For next week ending June 20, the index could test 1,500 to 1,550, with potential upside toward 1,550 if trade talks progress favourably and domestic sectors such as banking and construction remain supportive.
'However, a bearish scenario could see the index drop below 1,500 if US-Malaysia trade talks falter or global trade tensions escalate,' she said.
Elaborating, she said the US-China resolution in London provided some clarity, reducing immediate uncertainty about a potential escalation in the trade war, although the relatively high US tariff rate of 55% on China could disrupt global supply chains, particularly in Asia, where Malaysia is a key player in manufacturing and electronics exports.
Beijing has tagged the United States with a 10% levy rate in return.
The agreement's positive signal of a trade truce may boost global market sentiment, but the high tariffs could pressure Malaysian exporters reliant on the US or Chinese markets, especially in technology and semiconductors, she pointed out.
The analyst explained, 'The market's reaction to the United States-China trade truce will likely solidify next week.
'If the framework is ratified by Trump and Xi, optimism could drive the FBM KLCI toward the 1,550 resistance level, especially if global equities rally.
'However, ongoing trade talks between Malaysia and the United States will remain a headwind.
'Any indication of punitive tariffs on Malaysian exports, such as electronics, which account for about 40% of Malaysia's exports, could pressure the index, particularly tech-heavy components like Inari Amertron Bhd and Nationgate Holdings Bhd .'
On the flipside, positive domestic factors, such as foreign inflows and a stronger ringgit may offset some external pressures, supporting sectors like construction, property and renewable energy, she said.
'Technical forecasts suggest a potential rebound if the 1,600 support holds, with upside targets at 1,620 to 1,630. However, a break below 1,500 could signal a bearish trend toward 1,487, driven by trade war fears,' added the analyst.
Taking a look at notable sectors, she said banking is expected to lead gains due to its strong earnings growth and domestic liquidity, while export-driven industries such as technology and commodities will be vulnerable to US tariff developments, although they could stabilise if trade talks progress favourably.
'Investors should focus on quality, dividend-paying stocks in resilient sectors like banking and construction, while monitoring export-driven sectors like technology for tariff-related risks,' she said.
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