This article first appeared in The Edge Financial Daily on February 11, 2019 - February 17, 2019

KUALA LUMPUR: The bellwether FBM KLCI index breached the 1,700 mark in January — the first time since November last year — but not enough to convince market observers that a bull run could be in store.

While the KLCI recaptured the 1,700 psychological barrier, the index actually recorded a 0.4% month-on-month contraction in January, said TA Securities chief investment officer Choo Swee Kee, adding that the market improved slightly in February.

Last Thursday, the index made another attempt to breach the key resistance level, as US markets climbed amid reports of a trade deal with China to be reached by March 1, closing at 1,693.39.

However, the rebound was short-lived as it pared gains the following day amid concerns that the two super powers will not reach an agreement by the deadline, meaning the US will further raise tariffs on Chinese imports to 25%. The KLCI closed 0.41% lower at 1,686.52 last Friday.

“In February, the market has [improved] slightly, but this is largely due to thin volume as most investors are still on holiday. [Moving forward,] we see a slight recovery [for the KLCI] but one not significant enough to entice new investors to jump into the market,” said Choo.

“We believe the market is exhibiting a unique phenomenon, with pockets of small rallies within a generally depressed market. Fund managers have to be brave and quick to take advantage of these rallies to generate returns in this challenging year,” he told The Edge Financial Daily.

While there are no signs of a bull run yet, Areca Capital chief executive officer Danny Wong Teck Meng said Asian equities, bashed down last year, are beginning to look more attractive compared to those of developed markets, and expects the Malaysian market to perform better.

“We look forward to Malaysia standing out from the rest this year, with reforms in the economy and the strengthening of corporate governance and anti-corruption measures, which would help with foreign inflows,” said Wong.

“The ringgit is also at an attractive level coupled with healthy foreign reserves. Exports are growing too, aided by the technology, electrical and electronics sector and hopefully, this translates into a boost for corporate earnings,” he added.

Meanwhile, investors are awaiting major corporates’ fourth-quarter results to be released by end-February, and Malaysia’s gross domestic product (GDP) data to be released on Feb 14, said CIMB Investment Bank research head Ivy Ng.

“On the external front, investors will continue following closely the latest developments on the ongoing US-China trade tensions, as well as Brexit and negotiations on the US federal government budget as the temporary bill to fund US government spending will expire on Feb 15,” she wrote in a Feb 7 note to investors.

Concerns over the US-China trade tensions shaved off 220 points on the Dow Jones last Thursday, marking an overnight decline of 0.9% to 25,169.53, as reports emerged that US President Donald Trump will not be meeting Chinese President Xi Jinping before the March 1 deadline for the two economies to reach an agreement.

Though the two leaders will not meet, trade talks are expected to resume in China this week between US Treasury Secretary Steven Mnuchin, US Trade Representative Robert Lighthizer and Chinese officials.

OANDA senior market analyst Jeffrey Halley said the global market should perform better in the first half of 2019 if a favourable outcome arises from the trade talks, but sees uncertainty in the later half of the year.

“Assuming we negotiate the trade talks without incident, the market should enjoy a good, if unspectacular, [performance] for the first half of 2019. Moving into the second half, I harbour some doubts,” said Halley.

“Global growth appears to be slowing and a sugar rush of rate cuts is only going to provide temporary relief. Indeed, central banks have little to zero room to manoeuvre in a downturn this time around, given so many of them still have record low rates. That said, a poor outcome from the trade talks could see stocks coming under pressure much sooner than later,” he added.

Similarly, CMC Markets analyst Margaret Yang expects a mild recovery in US markets and the Dow Jones index in the first half of the year but said the upside may be capped by slower earnings growth in the US.

“On the flip side, amid a broad slowdown in global economic growth and trade uncertainties, US earnings growth is expected to decelerate in the first and second quarters of 2019, which will probably cap the upside of this rally.

“There are also potential risks such as the US-China trade talks, Brexit, Italy and EU elections, [as well as] Venezuela, another potential US [government] shutdown and the debt ceiling,” she said.