Business Standard

Trump 2.0: A recipe for N Asian mkt getting shellacked, not India

BIDEN BOUNCE VS TRUMP SLUMP: Nomura weighs in on the potential fallout for AXJ stocks

- SAMIE MODAK Mumbai, 3 March

Markets globally are increasing­ly pricing in the prospects of former US President Donald Trump getting re-elected. Betting markets in the US are currently suggesting that Trump is more likely to win the US presidency, with markets ascribing a 47 per cent chance of a Trump presidenti­al win versus 41 per cent for Joe Biden.

A report by broking firm Nomura believes that the US election verdict could have a huge bearing on the performanc­e of the Asia market. It believes the elections remain a key risk for the Asia Ex-japan (AXJ) universe, with North Asia stocks more vulnerable, while India and the Associatio­n of Southeast Asian Nations (Asean) can be the “safe harbours” again.

“Whether Trump goes on with his rhetoric remains to be seen, but the focus on his policies is rising as the US elections approach. Many market participan­ts have been taken aback by Trump’s bite versus his bark, and his threats may not be completely ignored. Trade protection­ism and tariffs are clearly bad news for Asia’s growth, but Asia is also better prepared this time. We also think stock valuations (especially in Hong Kong/china, Asean) going into this risk event are relatively modest, and companies vulnerable to tariffs have been diversifyi­ng production to mitigate the impact of tariffs,” wrote Nomura strategist­s Chetan Seth, Anshuman Agarwal, and Ankit Yadav.

Trump’s last election led to a major increase in trade tensions between the US and China, coinciding with a correction in the Hong Kong and China markets. Those tensions also weighed on the wider Asian equity complex, observes Nomura.

In the run-up to the elections, Trump has discussed a likely 10 per cent universal tariff on all US imported goods and has also threatened tariffs of 60 per cent or more on Chinese imports.

“An extreme scenario of 60 per cent or more tariffs on China imports will have significan­t global ramificati­ons for asset markets, including non-axj stocks, as it might invite tit-for-tat actions from China, which may significan­tly hurt US interests in China. Macro-wise, it will be inflationa­ry for the global economy (perhaps even stagflatio­nary) and will accelerate more supply chain shifts within Asia. Nonetheles­s, a second Trump presidency would be a negative risk factor for AXJ stocks overall,” adds the Nomura note.

During the 2018–2019 trade war period, the equity markets in India and the US managed to eke out some gains, while most others suffered. Among the worst hit were South Korea, Hong Kong, and Japan. However, India’s rupee had depreciate­d over 10 per cent between January 2018 and September 2019. “We think a similar dynamic might play out this time, with India likely to be the key relative safety trade, benefiting from (a) greater supply chain shifts; (b) limited linkages to North Asian supply chains/growth; and (c) reallocati­on of flows. Meanwhile, Trump risk will add to the laundry list of investor concerns on Hong Kong and China stocks,” said the Nomura strategist­s.

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