Tech and Glove Sectors Surge: Which Malaysian Industries Benefit from US Tariff Hikes?

On Wednesday, shares of Malaysian technology firms soared to a 15-month peak, buoyed by the announcement of the US intention to impose a twofold increase in tariffs on Chinese semiconductors. Propelled by these developments, the Bursa Malaysia Technology Index, encompassing 48 sector-specific stocks, ascended by 1.2%, reaching its zenith since February 3, 2023.

Amidst an election year, U.S. President Joe Biden has introduced substantial tariff increases on various Chinese imports, aiming to fortify US domestic production across vital sectors. Targeting key sectors, the U.S. President is escalating tariffs on several sectors, including semiconductors, batteries, solar cells, and essential minerals, alongside the previously disclosed hikes on steel, aluminum, and electric vehicles. These adjustments are expected to impact approximately $18 billion in annual imports, according to the White House. The EV industry saw the largest tariff hike, from 25% to 100%, while tariffs on syringes and needles also increased by 50%.

Since the beginning of the US-China trade war five years ago, international corporations have been exploring alternative locations beyond China's borders to alleviate tariff burdens and other geopolitical uncertainties, an approach commonly referred to as the 'China Plus One' strategy.

On the one hand, Chinese suppliers serving major US multinational corporations have already begun partnering with Malaysian companies to establish plants in Malaysia to continue supplying US-based customers. What's more, switching to a neutral country like Malaysia would allow some products or materials to avoid US tariffs on China, the RHB Investment Bank said.

On the other hand, "This situation also opens doors for Malaysia-based companies, particularly in the automatic test equipment sub-segment, as Chinese companies shift away from US-based suppliers," RHB said in a note on Wednesday.

US Tariffs on Chinese rubber medical and surgical gloves will be increased from 7.5% to 25% by the year 2026. The tariffs effectively increase the cost of Chinese gloves, making Malaysian gloves more attractive to American buyers due to the reduced price differential. This means that Malaysian glove manufacturers have the opportunity to regain market share lost to Chinese competitors during the price war that began in 2021.

Following the announcement of this news, related industries and targets in the Malaysian stock market were stimulated and saw an increase, with Top Glove closing up 31% on Wednesday.

Here are the related industry stocks from Malaysia and their market performance.

By 2025, US tariffs on Chinese semiconductors will double from 25% to 50%. These tariffs are aimed at curbing China's enthusiasm for so-called legacy chips, which are older-generation components that remain crucial to the global economy. The continually growing market share and rapid expansion of production capacity in China's traditional semiconductor industry could result in the crowding out of investments from market-driven companies. The U.S. tariffs on Chinese semiconductors could benefit Malaysia's semiconductor industry, as it may become an alternate supply source amidst global supply chain restructuring.

"In fact, this development could accelerate and intensify the project/programme transfer or relocation, benefiting the companies in the mid-term," RHB said and maintained its 'overweight' call on the sector.

Here are the related industry stocks from Malaysia and their market performance.

The US will implement tariffs on Chinese electric vehicles this year, with the final tariff rate increasing from the current 25% to 100%. Furthermore, according to an analysis released by Wolfe Research on Tuesday, Biden's tariffs will facilitate the European Union's move to impose import duties on Chinese EVs. Previously, China's EV production was in excess, with exports of Chinese electric vehicles growing by 70% in 2023 compared to 2022, suppressing production elsewhere. After the new tariffs are implemented, not only will there be an increase in demand for Malaysia's electric vehicle components, but this move is also likely to promote the development of Malaysia's electric vehicle industry, including the assembly and production of EVs.

Here are the related industry stocks from Malaysia and their market performance.

GREATEC: Greatech is one of the leading providers of production equipment for lithium-ion battery modules and packs. It specialised in key technologies in battery production such as laser, adhesive dispensing and robotic handling, and tests. Its key technologies can be segregated into EV battery module assembly line and EV battery pack assembly line.

D&O: D&O Green Technologies develop semiconductor application technology, installation, electronic components, electrical equipment for lighting, electronic display screen, and lighting fittings for electric vehicles.

By 2024, US tariffs on chinese solar cells, whether or not assembled into modules, will increase from 25% to 50%. China controls over 80% to 90% of certain segments of the global solar supply chain and provides solar components and panels at low prices, affecting investments in solar manufacturing outside China. As a mature solar manufacturing base, Malaysia may benefit as manufacturers seek supply chain alternatives to China.

Here are the related industry stocks from Malaysia and their market performance.

AmInvestment has raised concerns that the recent tariff increase may inadvertently precipitate a glut in supply and amplify competitive pressures, which could adversely affect Malaysian firms that cater to clientele in China.

The investment firm anticipates a potential market inundation with products like conventional semiconductor chips, electric vehicles, and solar panels, as accumulating inventories could result in surplus. "We believe end-products such as legacy chips, electric vehicles and solar panels could flood the market with oversupply as inventories eventually pile up," the research house said. "We are cautious on the oversupply of end-products that can cause a slower rate of replenishment in orders by Chinese customers."

Moreover, AmInvestment flagged that intensified competition among Chinese players could lead to years of market consolidation and affect Malaysian companies tapping into the Chinese market as they face more challenges, such as declining market share and prices.