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Trump, inaugurated: implications for Asian markets

Trump, inaugurated: implications for Asian markets

Is it the beginning of a new era after Donald Trump's swearing-in ceremony?

The new president, who is known for being an American businessman and a television personality, kicked off his four-year term by withdrawing from the Trans Pacific Partnership on his first day in the Oval Office.

Will he stick to his rhetoric during his campaign? To what extent is he going to implement his trade policy? Is there a potential for starting a trade war?

Against such a backdrop, Citywire Asia speaks to top investors and find out the market implications of Trump's words and actions.

Joep Huntjens, NN Investment Partners

Head of Asian debt

Although the new president continued to strike a protectionist tone, markets are taking it into their stride for now.

We think there are two reasons for this: the first is that more than half of the investor base for Asian credit is based in the region, and local investors are less prone to get skittish. Secondly, Asian issuers are diverse and many are not over reliant on exports to the US.

In the medium term, we expect the pace and magnitude of US Treasury rates to be the key factor of Asian credit returns, particularly in the investment-grade space.

This is largely dependent on Trump’s ability to fulfil his promises of implementing fiscal stimulus, and much of it rests upon the US’ ability to boost infrastructure spending.

For our universe, the TPP is less important as it already excludes China, which is the biggest portion of the Asian fixed income world. Far more important is the rival Regional Comprehensive Economic Partnership (RCEP), which includes China and is even attracting new interest from countries outside the Asian region like Peru.

On the geopolitical front, the US’ withdrawal from Asia is likely to lead to a rise in China’s clout. Already, we have seen countries like the Philippines warming to China; the two countries recently agreed to cooperate on 30 projects worth $3.7 billion focusing on reducing poverty.

Daniel Morris, BNP Paribas Investment Partners

Senior investment strategist

We expect that the current optimism about the transformative nature of a Trump presidency will ultimately be unjustified, arguing for a deflation of the post-election reflation trade. Under this scenario, fixed income should outperform equities.

US small caps should nonetheless benefit from stronger US demand stemming from infrastructure spending and outperform US large cap stocks, which will be hampered by a stronger dollar.

It is certainly not in the best interests of either the US or China to enter into a trade war. While we could see perhaps a more assertive stance on the part of the US vis-à-vis its trading partners, we would not anticipate that any changes to current trading arrangements would be so significant as to provoke an outsized response from other countries resulting in an actual trade war.

Jim Leaviss, M&G Investments

Head of retail fixed interest

US relations with China will continue to draw market attention. Any imposition of trade tariffs and whether the US Treasury will name China as a currency manipulator will be the key events to watch. Therefore, the preference is to avoid China within a global bond strategy. Better relative value can be found elsewhere on a selective basis.

In Asia, for example, preferences include Indonesia, where sovereign valuations look appealing after the market was unduly punished amid the post-US election sell-off. Inflation-linked government bonds in Thailand are also to be favoured.

In contrast, be wary about markets such as Vietnam, a country with a relatively high US export dependency relative to its GDP. As such, Vietnam is an example of a country that stands to lose out from any moves towards trade protection measures in the US, as well as Trump’s rejection of the TPP trade agreement.

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