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

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

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 therefore his threats may not be completely ignored. As noted by our economists, 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,” write Nomura strategists Chetan Seth, Anshuman Agarwal, and Ankit Yadav in a note.

Trump’s last election led to a significant 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.