What Trump means for Asia – Nomura

Research Team at Nomura, suggests that the major changes in US policy after the Trump victory should add downside risks to Asia’s growth.

Key Quotes

“Markets are pricing-in a risk premium that Trump follows through on his pledges to increase US trade protectionism, tighten immigration, force America’s allies to meet the full cost of the security guarantees provided by the US and implement a zealous fiscal expansion.”

“Of course, Trump may not follow through. But on the other hand, compared to the UK and Brexit risks, the stakes for the rest of the world are much higher if the most important country in the world – in terms of size of economy, capital markets, reserve currency and military power – were to turn inward.”

“In Asia, we judge that Korea, Hong Kong, Singapore, Taiwan and Malaysia are the more vulnerable economies, because their trade-orientated economies leave them exposed to US protectionism; they face bigger regional security risks; and most have fragile domestic economies, including high domestic leverage.”

“We judge that China, India and Thailand to be relatively less exposed, due to large and relatively closed economies. China and India have room for policy responses, while in Thailand’s case we judge that it is already severe supply-side constraints holding the economy back.”

“FX strategy: The US election result is a medium-term negative for Asia FX, in our view, but more severe for Northeast Asia than other parts of the region. Our view of RMB depreciation has grown and we added to our short CNH vs. USD and CFETS positions. We also increased our long USD/KRW position, in part because of negative local developments.”

“South/Southeast Asia FX should see less of a negative impact given relatively robust growth and more favourable political and policy developments. However, a concern is over US Fed hikes ahead and the impact on IDR and MYR given large bond inflows. We also added a long USD/PHP position given risks to trade, immigration, remittances and the BPO sector from a Trump presidency, along with domestic concerns.”

“Rates strategy: We expect receive positions in Singapore, Malaysia, Taiwan and China rates and India bonds to perform well. Steepeners in Korea, Thailand and Taiwan and payers in Hong Kong and Korea are likely to underperform initially, however we believe our payers and steepener positions will move back in our favour over the medium term.”