27 July 2016
3 Asian Investment Strategies If Trump Wins?
SINGAPORE (July 26): Asia will be on the “front line” if Donald Trump follows through on his main campaign pledges.
From protectionism to regional security and US macro policy, Asia could see a period of “risk and uncertainty” should Trump emerge victorious at the US Presidential Election in November.
“A Trump presidency would no doubt hurt Asia’s GDP growth and could ultimately drive cost-push inflation, impart smaller trade surpluses and looser macroeconomic policies,” says Nomura in a report on Monday.
Trump has said he would brand China as a currency manipulator and raise import tariffs, as well as withdraw from trade treaties such as the Trans-Pacific Partnership (TPP).
While he has pledged to bolster the US military presence in Asia, he also said he intends to force America’s allies, including Japan and South Korea, to meet the full cost of its security guarantees. This could result in a scaling back of US military engagement in Asia instead.
Nomura says this could destabilise regional security, particularly in the South China Sea and the Korean Peninsula.
A tribunal at the UN-backed Permanent Court of Arbitration in The Hague earlier this month ruled that some of China's expansionary tactics in the South China Sea were illegal, handing an emphatic legal victory to the Philippines.
China claims most of the sea, which is disputed by the Philippines, Vietnam, Malaysia and Brunei, who all have rival claims.
“At this early, speculative stage, our analysis indicates that South Korea and the Philippines would be among Asia’s most vulnerable in terms of both economic and geopolitical channels,” Nomura adds.
Nomura highlights some investment strategies to adopt if Trump makes it to the White House.
1) FX strategy
Direct risks to foreign exchange in Southeast and South Asia are likely to be less severe than in Northeast Asia, says Nomura.
In Asia, Nomura recommends being short Chinese yuan and Korean won, and long Indonesian rupiah and Malaysian ringgit.
“We believe the impact on IDR and MYR would be more contained, given robust growth, relatively favourable political and policy developments and bond inflows into both countries,” Nomura says.
2) Rates strategy
Nomura believes a Trump victory is likely to make central banks shift their bias further towards easier-for-longer policies.
“In such an environment we expect investors to focus on high-quality carry trades where an idiosyncratic domestic story is favourable for local rates,” Nomura says.
This would benefit rates market in Korea, India, Malaysia and Australia, while Hong Kong and Singapore are likely to underperform US rates.
“As far as trade recommendations are concerned, we believe receive 3yr MYR NDIRS; long 7yr MGS; long 7yr IGB; receive AUD 2yrfwd1yr IRS; receive KRW 3yr; and receive THB 5yr positions would perform,” says Nomura.
“We would express our view of HKD and SGD rate underperformance via pay HKD 5yr vs USD 5yr and pay SGD 2yr vs USD 2yr positions,” it adds.
3) Equity strategy
If Trump becomes president, Nomura says “an initial negative reaction in equities” is likely, but the longer term impact on equities beyond that is unclear.
China, Korea and the Philippines are likely to be most affected, followed by India, Singapore and Indonesia in the next group, and the least impact seen in Thailand and Malaysia.
“Specifically, we would expect our Asia Arms Race basket (rising risks of confrontation in the region), defensive stocks in Thailand and Malaysia (markets least impacted), and higher-yield stocks (to the extent that a Trump presidency contributes to lower global yields) to outperform,” says Nomura.
“Longer-term, downsides to growth and rising uncertainty in policy would imply a further flattening of our expected trend for Asian equities over the next 12-24 months,” Nomura adds.
Taken from: http://www.theedgemarkets.com/en/node/293955
