Singapore the initial reaction of Asian stock investors to Donald Trump’s election victory was clear: sell, on worries his protectionist trade rhetoric could hurt the region’s export economies.
Long-term investors have since started to trade on Trump’s promises of tax cuts and higher infrastructure spending that will stimulate US growth and pull the world economy along, or the reflation play.
Asian emerging stocks have risen more than 11% from a Dec 23 low, above November’s pre-Nov 8 election levels though they have come off their highs on prospects of an imminent US interest rate hike.
You can buy cyclical stocks in Asia and benefit from the reflation trade,” said Sat Dutra, an Asia fund manager at Henderson Global Investors. You don’t have to buy exporters and be exposed to the vagaries of US policy.
The rally in Asian shares has been led by cyclical sectors, such as consumer-related companies, which typically thrive in times of economic strength.
Materials stocks, for example, are up 15% from post-election lows, while utilities have risen less than 9%.
Investors are more confident governments can boost growth via fiscal policies and that inflation is picking up after a long period of highly stimulative global monetary policies.
What has started to change, which is giving people faith, is that global growth is starting to spread,” said Josh Crabb, head of Asian equities at Old Mutual Global Investors. Asia is still very cheap, and people are buying into markets like Taiwan and South Korea because they see them as global growth trades.
Old Mutual’s sterling-denominated Asia-Pacific fund, whose biggest holdings include South Korea’s Samsung Electronics, Hong Kong-based Tencent Holdings, and Taiwan Semiconductor Manufacturing Co, returned 6.2% in January, compared with the benchmark’s 3.9%.
Signs are that manufacturing, consumer demand, and inflation are picking up across Asia. The World Bank has also forecast 2.7% global growth this year, from 2.3% in 2016.
Taiwan and South Korea – which have led equity flows into Asian emerging markets this year – could be vulnerable to US trade protectionism, but Henderson’s Dutra said larger firms such as Samsung and TSMC are “so far up the value chain that they’re not just commoditised, tech companies. With more of such companies and stronger current account positions, North Asian markets are a better bet than South-East Asia, he said.
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