KUALA LUMPUR, Jan 7 (Bernama) -- Bursa Malaysia’s benchmark index rebounded from earlier losses to close at its intraday high on Wednesday, gaining 0.27 per cent in late trading as buying interest returned to selected heavyweights. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) advanced 4.48 points to 1,676.83 from Tuesday’s close of 1,672.35. The benchmark index opened 0.88 of-a-point lower at 1,671.47 and subsequently hit a low of 1,665.94 during the mid-morning session before gaining momentum toward closing. On the broader market, losers led gainers by 565 to 512, while some 526 counters were unchanged, 1,046 untraded, and 10 suspended. Turnover improved to 2.73 billion units worth RM2.76 billion versus Tuesday’s 2.66 billion units worth RM2.76 billion. Dealers said that investors were cautious following geopolitical developments in Asia.
Russell 2000 Extends Decline Amid Policy Uncertainty
- The Russell 2000 Index, which tracks small-cap stocks, has fallen about 10% from its late-2024 peak, as optimism over US President Donald Trump’s policies fades.
- Corporate leaders are also growing increasingly pessimistic, with Bank of America’s analysis showing the most negative sentiment on small-cap earnings calls since 2004.
Reality Check for Small-Cap Optimism
- Small-cap stocks initially surged post-election on hopes that Trump’s pro-business policies and tariffs would boost US-based companies.
- However, reality has set in, as higher-for-longer interest rates, economic uncertainty, and potential trade war risks pressure earnings and balance sheets.
- Sectors vulnerable to trade tariffs, including autos, capital goods, and transportation, make up 15% of the Russell 2000, compared to just 9.1% in the S&P 500, according to Bloomberg Intelligence.
Inflation, Growth, and Interest Rate Pressures
- Small-cap stocks are highly sensitive to rising borrowing costs, as they typically hold a higher share of short-term and variable-rate debt.
- A growth slowdown would also hit small caps harder than large corporations, which tend to have stronger financial resilience.
- More small-cap companies are issuing negative earnings guidance, with the highest percentage of downward revisions since Q1 2023.
Bearish Signals Grow Stronger
- Options traders are increasingly betting against small caps, with demand for protective put options reaching levels last seen in December.
- The Russell 2000 has broken below key technical levels, including the 50-day, 100-day, and 200-day moving averages.
- If the index breaks below its Jan. 13 low, analysts predict an additional 10% downside risk.
A Potential Comeback?
- Despite the current bearish outlook, small caps have a history of sharp rebounds.
- Signs of US economic strength, easing inflation, or progress on Trump’s tax cuts could fuel a recovery.
- Investors remain divided: some fear missing out on a rally, while others worry about the "death of small caps."
For now, the bears are in control, but any shift in economic conditions could quickly change the outlook for small-cap stocks.
Comments
Post a Comment