Investors in Asia Await Market Reaction to Trump
22 January 2017 - 8:59PM
Dow Jones News
By Ese Erheriene and Gregor Stuart Hunter
HONG KONG--Investors in Asia will have their first chance to
respond to President Donald Trump's inauguration speech when
markets open Monday, with many of them remaining optimistic about
the market outlook as the new U.S. administration takes office.
In his inauguration address on Friday, Mr. Trump continued with
the nationalistic tone that characterized his presidential election
campaign, a tone that has stoked fears in Asia of rising
protectionism that could hurt the region's exporters. Mr. Trump
previously promised to pull the U.S. from the Trans-Pacific
Partnership, a regional trade agreement with Asia that was a
signature policy of former President Barack Obama.
But investors say they are prepared to give Mr. Trump time to
make his policies on trade and other matters clear. Meanwhile, they
are optimistic that the broad rally in global markets since the
U.S. election can be maintained, given Mr. Trump's agenda of tax
cuts and infrastructure spending.
Financial markets in the U.S. broadly rose on Friday following
Mr. Trump's speech. The Dow Jones Industrial Average closed up
0.5%, while the S&P 500 and the Nasdaq Composite both added
0.3%. The WSJ Dollar Index fell 0.3% against a basket of 16
currencies after earlier rising as much as 0.4%.
Mr. Trump's sometimes antagonistic rhetoric should be viewed as
the opening salvo in efforts to strike deals, and not necessarily
reflective of his desired outcome, said Mark Tinker, head of AXA
Framlington Asia.
"It's a new way of working for us," he said. "Most of the
statements that we're getting tweeted from the White House bathroom
will be the start of negotiations, rather than final policy."
That means paying attention to what Mr. Trump does in terms of
executive orders that affect particular industries, rather than
what he says he will do, Mr. Tinker said.
Several economists have warned of the risks of a trade war if
Mr. Trump imposes higher tariffs on imports. Last week, Bank of
America Merrill Lynch said the possibility of a serious escalation
of U.S.-China trade tension represents "the biggest risk to the
global economy in 2017."
Others believe Mr. Trump represents a new kind of challenge for
financial markets that could spread volatility.
Mr. Trump will represent a "shock to the system," said Gavin
Parry, managing director of Parry International Trading. Mr.
Trump's vocal stance on the detrimental effects of the stronger
dollar and the unpredictability of his leadership style is likely
going to upset "the traditional views and perceptions and
philosophies around price discovery and markets."
For now, investors are looking past such warnings, with the
inauguration speech having done little to shift their views.
"Markets tend to be cautious before the event and if there are
no materially adverse developments, markets will tend to be less
fearful after," said Woon Tian Yong, an investment analyst at
Phillip Futures, who stayed awake late in Singapore to stream Mr.
Trump's speech before trawling the updated White House website for
further policy clues.
One factor that encourages regional fund managers is that stocks
in Asia look relatively cheap, said Joshua Crabb, head of Asian
equities at Old Mutual Global Investors, and have recently been
trading at a discount to their global peers.
"If Trump's America works, it'll be because it reinvigorates the
animal spirits," he said. "If people start feeling less pessimistic
about the world, there are a lot of cheap assets in places like
Asia that won't remain cheap."
Investors remain broadly positive on the commodities and
construction sectors given Mr. Trump's commitment to improving
America's aging infrastructure system. Conversely, analysts said
investors in the immigrant-reliant technology sector should brace
themselves following Mr. Trump's talk of "rebuilding our country
with American hands and American labor."
To be sure, there are areas of confusion as Mr. Trump takes
office, notably in the currency markets.
Mr. Trump's economic plans have heightened expectations that
U.S. interest rates will need to rise at a brisker clip this year
to contain inflation. In turn, that has helped push up the dollar
against a broad range of currencies, notably the Japanese yen and
the Chinese yuan.
But Mr. Trump is also keen for U.S. exports to become more
competitive globally and recently signaled he felt the dollar had
become too strong.
"The dollar is on an upward trend because of the Fed tightening
policy, but because Donald Trump says a strong dollar is not good
for exports, that makes it very contradictory," said Margaret Yang,
a market strategist at CMC Markets. Still, she said the dollar is
likely to keep rising and "emerging currencies like the Chinese
yuan, the Indonesian rupiah and the Indian rupee are going to
suffer from outflows."
Write to Ese Erheriene at ese.erheriene@wsj.com and Gregor
Stuart Hunter at gregor.hunter@wsj.com
(END) Dow Jones Newswires
January 22, 2017 04:44 ET (09:44 GMT)
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