Asian markets' direction in new Trump era: Key questions answered

Asian markets' direction in new Trump era: Key questions answered

An unexpected win by billionaire businessman Donald Trump on Wednesday unleashed a bloodbath across Asian markets, leaving traders flat-footed and investors scrambling for the exit. Moving forward, where are markets headed?

A television broadcast of Donald Trump delivering his victory speech is seen in Tokyo

SINGAPORE: For CMC Markets’ senior sales trader Alex Wijaya, Wednesday (Nov 9) morning has been an unexpectedly frantic one, with continuous phone calls from investors looking to exit the market.

“I think until last night, everyone was still thinking that (Hillary) Clinton could manage a narrow win. After the results started coming in, I’ve had lots of clients calling in given that this is one of the biggest risk events of the year,” he told Channel NewsAsia.

“It's like Brexit all over again,” said Mr Wijaya, referring to the worldwide market chaos that unfolded in June when Britons shocked the world by voting to leave the European Union.

As it became clear that businessman Donald Trump had staged an upset to beat Democratic presidential nominee Hillary Clinton in the race to the White House, financial markets from New York to Singapore plunged.

In Tokyo, the benchmark Nikkei 225 index plummeted 5.4 per cent, hit by a stronger Japanese yen amid flight to safety. In Australia, the ASX 200 closed 1.9 per cent down while Seoul’s Kospi index slumped 2.3 per cent. Hong Kong's Hang Seng index fell 2.2 per cent and the Shanghai Composite slid 0.6 per cent.

In Singapore, the Straits Times index came off session lows to end the day 1 per cent lower.

Over in the commodity markets, safe-haven gold rallied as much as 3 per cent to US$1,317 an ounce as the greenback slid. Oil headed in the opposite way on concerns over the global economy, with US crude last seen around US$44.21 a barrel.

Moving ahead, analysts are bracing for far more volatility, even though some market watchers are not ruling out the possibility of “a silver lining” from a Trump presidency. Here’s what you need to know:

Q: After Wednesday’s bloodbath, can markets recover?

According to CMC Markets' Mr Wijaya, Trump’s victory has “changed the game” and financial markets will be watching to see if that will set the stage for a series of radical policy reversals both at home and overseas.

This means that cautious sentiment is likely to hang over Asian markets in the near term.

For Capital Economics’ chief US economist Paul Ashworth, while a period of calm could return to markets within a few weeks, there will be the “constant risk of a renewed blow-up over the coming months and years” given Trump’s “volatile character”.

Apart from Trump-related uncertainties, OCBC Bank's vice president and senior investment strategist Vasu Menon said other global risk events looming in the horizon will likely fuel further market gyrations.

“There will be continued volatility given that Trump represents shock and uncertainty to many people. But beyond that, you have other events scheduled over the next six to 12 months such as elections in France and Germany, decisions from the Federal Reserve and that will ensure plenty of volatility,” he explained.

However, Mr Menon also raised the possibility of a potential “silver lining”.

“Trump has promised expansionary economic policies to boost economic growth in the US and to create better jobs. If he’s able to push through that aggressive economic agenda, America can see stronger growth and that will only be good for Asia,” he said.

“Also, I think it hasn’t dawned on markets that the US president is limited in his powers with Congress providing checks and balances. That will ensure that Trump doesn’t do anything too drastic,” Mr Menon added.

As analysts debate over the implications of Trump taking over as the leader of the world’s biggest economy, they agree that emerging markets will likely be among the worst hit.

In Asia, that will include economies such as Taiwan, South Korea and China.

“In the next few days, we expect further volatility in the market as markets try to understand what Trump’s policy will be in the next three to four months,” Nomura’s managing director and senior economist Mark Doms said in a conference call. “The bigger question mark is what this means for the emerging markets because Trump’s policies are anti-globalisation in many ways and that could harm emerging markets.”

A screen displays the Nikkei index in Tokyo on November 9, 2016.

Tokyo's Nikkei 225 was the biggest casualty in Asia on Wednesday, losing more than 5 per cent on the back of a stronger yen. (BEHROUZ MEHRI/AFP)

Q: What does this mean for Singapore?

While Southeast Asia is likely to be insulated from Trump-related uncertainties, Singapore will be the “outlier” given its open economy and status as a safe haven in the region, Nomura’s Mr Doms said.

“In Singapore, certain sectors will be affected but the bigger issue is that it tends to act as a safe haven currency in the region, In times of uncertainties and as the US dollar weakens, the currency tends to strengthen,” he said.

At a time when the trade-dependent economy is hamstrung by sluggish global demand and ongoing domestic restructuring, a stronger Sing dollar will likely be unwelcomed.

Meanwhile, any increase in trade protectionism globally due to the president-elect's harsh rhetoric against trade, will likely take a toll on already-faltering global demand. That would have an indirect impact on the city-state's open economy, said IG’s market strategist Pan Jingyi, who also expects local shares to take cues from the volatile global market in the near term.

Companies with exposure to commodities and global trade such as Keppel Corp and Sembcorp Marine could stay under pressure for the time being, Mr Wijaya added.

Q: Is it time to flee to safe haven assets like gold?

Amid the bloodbath in financial markets, investors have unsurprisingly flocked to safe-haven assets.

Bullion dealer GoldSilver Central noted a 30 per cent increase in enquiries about the yellow metal on Wednesday. On the back of Trump’s win, managing director Brian Lan expects gold prices to rally further and possibly test a high of US$1,375 set earlier this year due to Brexit.

For the year, however, Mr Lan is sticking to his previous forecast of US$1,300 for now.

OCBC’s Mr Menon is also holding on to his six-month forecast of US$1,330 for the precious metal.

“The uncertainty from the US elections will provide some support for gold around US$1,300 and US$1,350 but don’t forget if Trump’s policies are successfully implemented, the ecoomy could do well. If inflation kicks in and interest rates go up, that will be a cap on gold prices,” he told Channel NewsAsia.

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Source: CNA/sk