Cautious tone in markets following Trump’s protectionist speech

This article first appeared in The Edge Financial Daily, on January 23, 2017.

KUALA LUMPUR: The US stock market closed higher in choppy trade after US President Donald Trump delivered a protectionist tone in his inauguration speech, promising an “America first” policy. Ahead of the inauguration ceremony, the FBM KLCI closed slightly lower by 0.10% at 1,664.89 points as investors turned cautious.

Etiqa Insurance and Takaful research head Chris Eng, however, expects the Malaysian market to recover to a positive trend as seen at the start of this year. Year to date, the FBM KLCI has gained 1.41%. “What’s Trump going to do and say is anybody’s guess. There will be some risk in that but in general, we are still positive on the first quarter and expect the market to move up,” Eng said.

Pong Teng Siew, Inter-Pacific Securities Sdn Bhd’s head of research told The Edge Financial Daily that the market ahead will be more cautious and warned that the US market might be overbought, and if a sharp reversal happens, it could affect global markets.

The warning is a stark reminder of George Soros’ prediction that Trump’s uncertainty will cause global markets to falter.

The Dow Jones Industrial Average closed 0.48% higher last Friday at 19,827.25 points, but off the day’s high after Trump’s inauguration speech.

A fund manager with a local house also thinks volatility will return as investors look into the details of Trump’s policies. “For now, we have seen a withdrawal from the TPP (Trans-Pacific Partnership) agreement, which is something that is expected. I do think the market will trade sideways moving forward and any policies implemented that could drive the GDP (gross domestic product) growth in [the] US would be good news for the market,” he said.

The White House website issued a statement that Trump’s policies aim to achieve annual economic growth of 4%. “To get the economy back on track, President Trump has outlined a bold plan to create 25 million new American jobs in the next decade and return to 4% annual economic growth,” it said.

The protectionist tone was clear in Trump’s inauguration speech, when he said, “We’ve made other countries rich while wealth, strength and confidence of our country has disappeared over the horizon … but that is the past. And now we are looking only to the future … from this moment on, it’s going to be America First.” This was followed by a White House statement, saying, “This strategy starts by withdrawing from the Trans-Pacific Partnership (TPP) and making certain that new trade deals are in the interests of American workers.” It added that Trump is committed to renegotiating another trade deal, the North American Free Trade Agreement, which was signed in 1994 by the US, Canada and Mexico.

Socio-Economic Research Centre executive director Lee Heng Guie said that it has been widely expected that the US will withdraw from the TPP and that it is something that the participant countries including Malaysia, have prepared for. “Of course, there will be some implications and the government will need to think of what’s next especially with countries that do not have any existing free trade agreement,” he said.

This was in line with International Trade and Industry Minister Datuk Seri Mustapa Mohamed’s comments that Malaysia may look into bilateral free trade agreements with the relevant TPP members should the agreement fail to materialise.

Reuters reported that some investors said that the inauguration speech reinforced concerns about potential protectionist trade policies. “There’s a concern about what his trade policies will be,” Jamie Cox, managing partner of Harris Financial Group was quoted as saying by Reuters. “That’s probably the No 1 area where Trump will have to tone down his rhetoric because we do have to work with other nations.”