Managers await the reality of Trump’s Asian threat

By Sam Shaw

Added 10th November 2016

Asian markets have recouped all their knee-jerk losses as the dust settles follow Donald Trump’s US presidential election win.

Managers await the reality of Trump’s Asian threat

While most developed markets closed yesterday (Wednesday 9 November) in positive territory, Asia appears to have ridden their wave.

Axa Investment Managers has highlighted several key areas in which Trump-based uncertainties could ensue.

Aidan Yao, senior economist at Axa IM, said two key areas to watch were trade and foreign exchange and international market sentiment.

As the most collectively exposed region to the US from a trade perspective, Asia – led by China – may look vulnerable if Trump realises his threats of punitive tariffs and his protectionist policies.

Having threatened to call China a “currency manipulator”, even a suggestion of an investigation into China’s FX policy bodes negatively for the entire region, Yao said.

He also warned of indirect feedback from Europe, warning as well as Bank of Japan and People’s Bank of China taking action – in light of volatility and a possible trade war - the European Central Bank might also shift its stance on monetary policy off the back of the election.

But he said the team was still expecting a €3m extension to its QE programme in December.

Meanwhile Robert Horrocks, chief investment officer at Matthews Asia said the impact of Trump on Asian markets would be more tempered than initial news flow might suggest, even if his trade tariffs were imposed as China and India, for example, remained domestic growth stories.

Horrocks said: “Therefore even if Donald Trump were to use executive orders to slap punitive tariffs on imports from Asian countries, we don’t anticipate the impact to be as great as many are forecasting.”

He said China for example, only exports about 10% of its manufacturing output – with only 18% of that going to the US. Further, net exports have dragged China’s GDP for several years, he said with about 70% of growth coming from domestic consumption.

Looking beyond China, he said more export-led economies such as Vietnam, Singapore, Malaysia and Thailand are most exposed from a trade perspective.

“The growth in low-cost manufacturing will continue to be an important trend and we don’t believe these jobs are likely to come back to the US,” he said.

While emerging market equities were “wrong-footed” by the result, Tim Love from the emerging market equities team at GAM, said it was a case of seeing how much of his divisive campaign rhetoric saw the light of day.

He said the obvious losers if the US withdraws from free trade agreements like the Transatlantic Trade and Investment Partnership, would be Taiwan and Korea.

He added: “China would also be another free-trade rollback loser – and if the market there is holding up, it is partly due to the local perception that in geopolitical terms and compared to Clinton Trump may be the lesser evil for China.” 

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