Asian markets plunged on the news of Trump’s stunning election victory, led by the Nikkei Stock Average, down about 5%, and the Hang Seng which dropped 3%. The market had priced-in a Hillary Clinton win.
“There will be a risk-off mode in the coming three to six months after the plunge in the markets,” Alan Luk Ting-lung, Hang Seng Bank's head of private banking and trust services told our sister publication Fund Selector Asia.
“Some investors are likely to move around their assets away from US dollar and in to other currencies such as the Japanese yen, Swiss franc, as well as gold.”
The Japanese yen, Swiss Franc and gold are likely to benefit, added Roger Bacon, head of Citi Private Bank’s managed investments and advisory for Asia-Pacific ex-Japan.
"Looking forward, our base case is a stronger US dollar, benefitting telcos, utilities and REITs. In rates markets, spreads will likely widen and EM is a possible underperformer."
"We have advised clients not to take a stance aggressively, and to add weight to safe havens such as gold, US bonds and cash"
Bacon's plan is to "stay liquid and nimble and be ready to buy on outsize dislocations".
Bonds and gold
High yield and risk assets will see volatility, said Bryan Collins, a fixed income portfolio manager at Fidelity International in Hong Kong, in a video interview today before the results were in. Yet he said the fundamentals in Asia haven’t changed. “We will look to add [exposure] in any volatility.”
Collins expects a flight to quality. “Government bonds might rally on this news.”
Kenny Wen, wealth management strategist at Sun Hung Kai Financial, said the result is a bit unexpected, but did not entirely catching people off guard.
“We have advised clients not to take a stance aggressively, and to add weight to safe havens such as gold, US bonds and cash. Apart from the US presidential election, there are also plenty uncertainties ahead, such as another interest rate hike by the Federal Reserve, the Italian referendum in December, and more elections in Europe next year.”
The knee-jerk reaction in the first day “meets our worst case scenario,” he said. A risk-off environment could trigger capital outflow from emerging markets including Asia.
Brexit fever spreads
The surprise US presidential election outcome, along with the unexpected Brexit vote in June, together underscore the strong wave of anti-establishment sentiment and the backlash against globalisation.
London-based David Riley, head of credit strategy at BlueBay Asset Management, said that while the US presidential elections were of far greater global significance than the UK referendum. “The fracturing of popular support for the economic and political status quo is raising the political and policy risks faced by investors”.
Investors in Asia have been particularly concerned over Trump’s often protectionist rhetoric, which could have serious implications for a region in which many countries rely on exports for growth and development.
Any policy change to curb global trade will impact emerging markets, several sources said.
“Predictability is everything,” said Singapore-based Tan Eng Teck, a senior portfolio manager investing in Asian equities at Nikko Asset Management. “There is little positive that can be said about Trump in Asia.”
Tan added that the election of Trump came at a time when Asia would have needed stability of both economic and political policies.
ANZ greater China chief economist Raymond Yeung noted “price reaction in commodity markets to the election results could be a hidden risk.
“Trump plans to revive the fossil-fuel sector and aim for the US to achieve self-sufficiency in energy. Any U-turn in the price trend triggered by this election could affect China’s economic momentum,” he said in a report.
Yeung saw less impact on the Chinese economy as a whole.
“Now China has become less reliant on trade with the US. The government can stimulate domestic demand to offset any potential decline in exports to the US just as it did in response to the global financial crisis. The immediate impact of a changing presidency in the US on China is not as large as perceived.”
On the upside, Luk, from Hang Seng Bank, said “it might benefit China by making it look relatively stable”. A weaker US dollar means a more stable RMB, and investors might opt for equities and bonds rather than property as the latter is already very expensive.
Hong Kong equities might also act as the safe haven, given its cheap valuations and the long-term trend of southbound fund flows from onshore China, he added.
Combined with the Trump victory, investors in emerging Asia are also concerned about the expected US interest rate hike in December.
Tuan Huynh, chief investment officer for Asia-Pacific at Deutsche Bank Wealth Management in Singapore, said rising interest rates in the US made emerging market assets, mainly bonds, less attractive to investors and could lead to large outflows.
“Whatever happens in Europe and the US, will clearly be felt in Asia as well.”