KUALA LUMPUR: Malaysia’s exports are likely to be impacted by the imposition of any direct tariff, global growth slowdown or possible recession.
However, the longer-term outlook remains bright as there is room for the country to benefit from supply chain diversification, said Franklin Templeton.
Franklin Templeton Emerging Markets Equity Portfolio Manager and Senior Research Analyst, Liao Yi Ping, said trade protectionist measures by the United States (US) could impact Malaysia’s electrical and electronics (E&E) sector due to its nature of complex global supply chains and the sector’s demand sensitivity to economic growth.
“In particular, what I’m watching for Malaysia is the implementation of the Artificial Intelligence (AI) Diffusion Rule, which may come in next month, and any potential additional semiconductor tariff to be introduced.
“I think we have to be cautious,” she said at the Franklin Templeton webinar, ‘Tarrif-ed? Trump’s first 100 days’ today.
On January 13, the administration of former US President, Joe Biden, introduced the ‘Export Control Framework for Artificial Intelligence Diffusion’, which placed Malaysia in Tier 2.
This categorisation limited Malaysia’s access to advanced AI chips, such as graphics processing units (GPUs), to a maximum of 50,000 units over two years.
Meanwhile, Liao said relatively higher tariffs on gloves from other locations could benefit Malaysia.
Meanwhile, for the technology sector, many multinational companies had already operated in the country, and the network effect with existing capacity was quite strong.
Regarding ASEAN, she said if reciprocal tariffs were imposed and not negotiated lower, this would pose a challenge to the region as the previously announced tariffs for countries like Vietnam, Thailand and Indonesia were high at 46 per cent, 36 per cent and 32 per cent, respectively.
“If imposed, it would run the risk of reducing the attractiveness of foreign direct investments by companies that had sought to shift manufacturing into these countries to try and diversify their production footprints.
“If I look within ASEAN, I think Vietnam may face particularly more challenges given its combination of a high contribution of US exports as well as a high contribution of Chinese investments to foreign direct investments,” she added.
Liao noted that countries like the Philippines and Indonesia might be less impacted because exports were a lower percentage of the overall gross domestic product.
“That being said, ASEAN is a very dynamic region. Indonesia is one of the most populous countries in the world.
“We continue to find bottom-up opportunities here as well amidst the selloffs that we have seen in the last few weeks,” she added.
Meanwhile, from a long-term perspective, Franklin Templeton viewed the escalation of tariffs between the US and China as a continuation of the broader decoupling trend that began during US President, Donald Trump’s first term.
“We see the ongoing trade war as a headwind to the Chinese economy and are cautious on broader Chinese equities.
“That said, we continue to find high-quality bottom-up investment opportunities due to China’s large domestic market, strong investment in human capital, and scope for monetary and fiscal easing,” Liao said.
She added that there were opportunities primarily in domestically oriented Chinese companies, as well as technology leaders in China with limited US exposure. – BERNAMA
