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How Could Trump's Victory Affect Malaysia?

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Moomoo News MY wrote a column · Nov 7 06:59
Following a victory in Wisconsin, Donald Trump has clinched the 60th U.S. presidential election on Wednesday, marking his extraordinary return as the 47th President of the United States. Trump is the first former president to reclaim the office since Grover Cleveland in 1892 and becomes only the second president after Gerald Ford in 1975 to survive two assassination attempts.
Turning to Malaysian financial markets, the $FTSE Bursa Malaysia KLCI Index (.KLSE.MY)$ index experienced a mixed performance surrounding the election results. On Wednesday, the index rose by 0.83%, but it fell by 0.67% on Thursday. Sector-wise, technology and transportation logistics saw gains of 0.81% and 0.77%, respectively, while other sectors faced declines.
Here is a historical overview of the KLCI index performance from one successful U.S. presidential election to just before the next:
How Could Trump's Victory Affect Malaysia?
Bond Market Sell-off and Further Depreciation of the Ringgit
In the wake of Donald Trump's victory, Malaysia's financial markets experienced turbulence. On Wednesday, the yield on Malaysia's 10-year bonds surged to a six-month high, while the ringgit dropped to its lowest level since August.
Philip McNicholas, Asia sovereign strategist at Robeco Group in Singapore, highlighted the broader implications of the election results. "The election outcome suggests sustained dollar strength and, combined with the expected steepening of the Treasury curve, could lead to further foreign capital withdrawal from the emerging markets' local currency bond markets, with Malaysia's lower-yielding bonds especially vulnerable," McNicholas explained.
Analysts at Kenanga forecast further short-term depreciation of the Malaysian ringgit. "With national debt anticipated to rise by over USD7.75t by 2035, pressure for a higher US term premium would likely push the DXY up. For Malaysia, this could see the ringgit depreciate to around 4.57/USD by end-2024 with potential recovery to 4.45/USD in 2025 if market tensions ease," they stated.
How Could Trump's Victory Affect Malaysia?
Tariff Risks
For Malaysia, tariff policy is one of the most significant Trump policy proposals to watch. Trump has proposed imposing tariffs ranging from 10% to 20% on nearly all U.S. imports and a significant 60% on goods imported from China.
OCBC holds a cautious view, suggesting thatifTrump returns to the White House, Malaysia could be among Asia's most at risk. The institution has analyzed three scenarios regarding these tariffs:
● Scenario One: Only China faces a 60% tariff, with no tariffs on other trading partners, potentially reducing Malaysia's economic growth by 0.2 percentage points.
● Scenario Two: A 60% tariff on China and a 10% tariff on other trading partners could reduce Malaysia’s growth by up to 0.9 percentage points.
● Scenario Three: Imposing a 60% tariff on China and a 20% tariff on other trading partners could impact Malaysia's growth by up to 1.5 percentage points.
However, some institutions hold a relatively optimistic view. Looking back at history, during Trump's previous term, Malaysia benefitted from the global corporate strategy of "China+1" following the first trade war. In 2019, Malaysia's re-export activities rebounded and expanded by 7.6% year-over-year. Before the global pandemic outbreak, the total re-export share had risen to 18.6% over two years, up from 13.3% in 2015.
As U.S.-China tensions escalate, many multinational companies are looking to diversify manufacturing bases to avoid tariffs and other trade barriers. Malaysia's strategic geographical location, coupled with government efforts to improve infrastructure and business environments, makes it an attractive destination for foreign investors, including those from China. CIMB Securities senior economist Vincent Loo said in a research note,
With escalating us-china trade tensions, Malaysia could see increased export demand from us companies looking to source products outside China, creating export growth opportunities in high-value sectors.
Key sectors such as Electronics and Electrical (E&E), semiconductors, green technology, machinery and alloy manufacturing, and medical equipment attracted significant foreign investments during the previous U.S.-China trade war. These industries are expected to demonstrate resilience even if the U.S. implements more comprehensive trade tariff policies in the future.
Overall, while the "China+1" strategy might partially hedge against the effects of comprehensive tariffs, the uncertainty surrounding Malaysian exports remains under such a tariff regime. Investors with a relatively lower risk appetite might consider focusing on defensive sectors with high dividends, such as the banking industry.
"America First" Energy Policy
Donald Trump's "America First" energy policy aims to enhance the production of fossil fuels, especially oil and natural gas. He has pledged to expand drilling on public lands and to reopen offshore oil and gas leasing. This initiative could place downward pressure on energy prices. As an oil-exporting country, Malaysia’s related energy export businesses could potentially experience some negative effects under this policy.
Source: Bloomberg, The Edge Malaysia, Forbes
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more
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