Tariffs unlikely to shake domestic industries

The Star

7 hours ago

PETALING JAYA: Domestically-driven sectors and ones that depend mostly on internal demand will likely be able to sustain their earnings despite volatilities of trade and impending tariffs.
Areca Capital Sdn Bhd chief executive officer Danny Wong said such sectors including banks, data centre-related companies and those dealing with construction, utilities and even land sales, will fare better.
'These sectors could likely outperform the ones that are affected by external factors like tariffs.
'These may settle down once tariffs are finalised or when news of it becomes stale eventually,' he told StarBiz.
In early April, the Trump administration implemented an initial 24% tariff on Malaysian goods, but faced threats of a 25% rate with potential hikes of up to 40%.
After intense negotiations, a trade pact was agreed, cutting the effective US tariff on Malaysian goods to 19 % – effective this month.
For now, semiconductors that fall under Section 232 and pharmaceuticals remain exempt.
Wong said for the technology sector, some companies will be able to pivot quickly in light of any new development coming from tariffs.
'It will solely depend on the sub sector and the companies whether they are chip makers, artificial intelligence, or automotive for example.
'But companies that depend on resources like labour might find it challenging,' he explained.
Analysts also believe the aforementioned sectors will be able to counter external headwinds.
For instance, Maybank Investment Bank (Maybank IB) Research stated that it expects a more balanced second quarter after a rather underwhelming first quarter of 2025.
It noted sectors such as construction, healthcare, property and, more selectively, the oil and gas and utilities sectors will have positive momentum.
However, planters may see weaker earnings in the second quarter from lower crude palm oil prices, while others might see an uplift from the currency exchange and disposal gains.
Meanwhile, Hong Leong Investment Bank Research (HLIB Research) said in a recent report that despite so many uncertainties, not all is doom and gloom.
According to the research house, Malaysia still has many factors that will support overall national competitiveness.
'Exemptions remain in place, reflecting the United States recognition that it cannot afford to alienate Malaysia, given its strategic role in the global supply chain.
'Malaysia accounts for approximately 19.8% of total US semiconductor imports, followed closely by Chinese Taipei at 19% and Vietnam at 10%.
'Malaysia's electrical and electronics exports account for 70% of total exports to the United States,' the report said.
Furthermore, Malaysia's trade performance had also improved, driven by resilient export growth, greater market diversification, and a recovery in the tourism sector.
In addition to that, the country's extensive network of bilateral free trade agreements and participation in the Regional Comprehensive Economic Partnership alongside trade talks will bring about opportunities for preferential market access, thus positioning Malaysia as a regional trade hub.
CIMB Securities looked at the manufacturing sector, and noted that in 2024, Malaysia held the largest share of the rubber glove market.
'We expect some incremental shift in US glove orders to Malaysia, but higher tariffs will still increase US buyers' cost base, which may limit restocking or lead to leaner inventories,' it said.
The research house added China and Vietnam will most likely redirect supply to non-US markets at a more competitive average selling price (ASP), further intensifying global pricing pressure.
'We believe the revised US tariff rates for glove-producing countries will prompt Chinese glove makers to shift production to the Asean region, particularly Indonesia, to benefit from lower US tariffs,' CIMB Securities said.
It added that it will maintain a 'neutral' stance on the sector on the back of ongoing headwinds, particularly sluggish demand recovery due to cautious buyer purchasing patterns, elevated costs and weak ASPs in an oversupplied market with new incoming capacity, particularly from Indonesia.
Maybank IB agreed, stating that even though Malaysia enjoys a lower tariff rate of 19%, the narrow or zero tariff differential against regional peers such as Indonesia, Thailand and Vietnam provides limited competitive advantage for Malaysian glove makers, especially as China glove makers continue to expand capacity in these countries.
It noted that these offshore facilities allow China players to bypass US tariffs on China-origin goods, further intensifying competition within South-East Asia and limiting pricing power.
'Our channel checks indicate China production costs overseas range from US$14 to US$15 per 1,000 pieces versus Malaysia's US$15 to US$16 per 1,000 pieces.
'With similar tariffs and higher costs, local glove makers have limited pricing power and could risk losing US market share once the new capacity in these countries comes online by end-2025 to early-2026,' it said.
With that, Maybank IB said it will maintain a 'negative' stance on local glovemakers with lower target prices as well.
'We believe upcoming results could be weak, mainly due to the weakening US dollar versus the ringgit,' it noted.
It also said cost efficiency will be key in maintaining competitiveness.