(Bloomberg) — Donald Trump’s election victory is changing the course of near-term money flows for three of Asia’s biggest stock markets as tariff risks loom large on Chinese assets.
Most read from Bloomberg
Market watchers see the possibility of money flowing to India and Japan, while investors assess Trump’s anti-China stance, with the newly elected president having previously threatened to impose tariffs of as much as 60% on Chinese goods. Morgan Stanley just reiterated its preference for the two countries’ stocks over China.
India, seen as a manufacturing alternative to China, is appealing to investors because of its relative immunity from global risks given a domestically driven economy. Japanese stocks are seen as indirect beneficiaries of Trump’s reflationary economic policies – which are expected to keep interest rates high, causing the dollar to rise and the yen to weaken, to the benefit of the Asian country’s exporters.
“Supply chains have been pulling out of China and that is helping not just Japan and India, but other countries, especially in Southeast Asia,” said veteran emerging markets investor Mark Mobius. “India is the major beneficiary as only the Indian workforce can match the Chinese in terms of numbers and labor costs. With Trump maintaining or even extending trade restrictions on China, this will be positive for India.”
That suggests Wednesday’s price action in Asia was likely a sign of things to come. As it became clear that Trump will return to the White House, the MSCI Japan Index and the MSCI India Index rose at least 1.5% each for their best day yet this quarter, while the MSCI China Index rose more than 2 % decreased.
The threat of tariffs is seen as complicating Beijing’s efforts to revive the economy and improve market sentiment through a series of stimulus measures that started in late September. This makes the ongoing session of the country’s legislature all the more important for investors.
“Should China’s expected stimulus announcements be less meaningful than expected, we believe investors could also shift their China exposure to Japanese equities, as we saw before the first round of stimulus announcements in China,” Morningstar Inc analysts wrote . Lorraine Tan and Kai Wang in a report. remark.
Chinese stocks were already under pressure ahead of the US election, with the rally driven by a monetary policy blitz that cooled in the absence of an impressive fiscal spending plan. The CSI 300 Index rose nearly 35% from its September low through October 8, but has fallen about 5% since then.
‘Short-term hit’
Republican proposals to impose higher tariffs on Chinese goods will likely weigh on growth in the world’s second-largest economy, Morgan Stanley strategists including Jonathan Garner wrote in a note.
“Please note that the tariff headwinds could offset the net net effect of the potential reflation measures” to be announced at this week’s meeting of the Standing Committee of the National People’s Congress of China, they said. “We reiterate our core overweight in Japan and underweight China, as well as our bias on Australia and India, where we are also overweight.”
Any further weakness in Chinese equities is likely to be positive for their biggest emerging market rival, India, as China’s recovery is cited as one of the key reasons for a record foreign exodus from the South Asian country’s equities in October.
Some other investors are more optimistic about China’s prospects.
While Societe Generale SA sees a short-term hit to Chinese assets, it maintains an overweight position on expectations that the “policy course correction implemented since late September” will remain the main driver of equities.
And both Japan and India have their own problems to deal with. The former group is staring at the possibility of excessive currency moves and potential interventions as the yen weakens against the dollar, while the latter is witnessing a slowdown in economic and earnings growth after a strong post-pandemic boom.
“In the very near term, the Trump trade could also be tactically positive for India” in terms of foreign flows, Madhavi Arora, an economist at Emkay Global Financial Services Ltd., wrote in a note. “However, there will be challenges in sustaining that rally.”
–With help from Winnie Hsu.
Most read from Bloomberg Businessweek
©2024 BloombergLP
