Asian markets upbeat on stimulus hopes ahead of Biden's inauguration

Singapore

ASIAN markets mostly rose on Wednesday, just before the inauguration of Joe Biden as US President, as investors looked with optimism towards the stimulus that could follow, but analysts noted that US-China tensions may not go away.

Last week, Mr Biden unveiled a US$1.9 trillion stimulus package proposal, and on Tuesday, his nominee for Treasury Secretary, Janet Yellen, urged lawmakers during her Senate confirmation hearing to "act big" on coronavirus relief spending, arguing that the economic benefits far outweigh the risks of a higher debt burden.

Following Dr Yellen's comments, Asian stocks on Wednesday tracked overnight gains on Wall Street, with major regional indices finishing in the green.

The Kospi in South Korea ended up 0.7 per cent, at 3,114.55, after rising as much as 1.7 per cent in early trade, while Australia's ASX 200 index rose 0.4 per cent to 6,770.4 to its highest level since February last year. In Hong Kong, the Hang Seng Index was up 1.1 per cent, while the benchmark Straits Times Index (STI) in Singapore rose 0.1 per cent to 2,998.77.

Bucking the trend were shares in Japan, where the Nikkei 225 fell 0.4 per cent on profit taking.

Jeffrey Halley, senior market analyst, Asia Pacific at Oanda, noted that the stimulus figure is a starting point, which will almost certainly have to be negotiated down. However, he added that if it passes relatively intact, it will be positive for US equities and for the global recovery climate as a whole.

"It should lead to increased consumption in the United States, which will benefit Asian exporters," he noted. "Notable winners are likely to be the semiconductor and electronics sectors."

Anthony Raza, head of multi-asset strategy at UOB Asset Management, said the US stimulus programme gives markets more confidence that the US will remain a growth engine for global GDP in 2021.

While Mr Biden has proposed raising corporate taxes, this is more of a risk for the US, Mr Raza added. "This is actually another reason to like Asia, as everyone will benefit from the stimulus support to growth while the US companies will face higher taxes."

Yeo Kee Yan, analyst at DBS Group Research, said the stimulus may have less of a direct impact on Singapore stocks, but some counters in the tech sector could benefit if there is increased consumer spending.

Mr Yeo noted that the STI has risen around 150 points in the first three weeks of 2021, but the momentum may not be sustained in the near term, as investors await company earnings.

Market participants also observed that the US dollar could weaken further.

Stephen Dover, head of equities at Franklin Templeton, said this and possible reduced trade tensions could be positive for international stocks. "We think there are opportunities in international stocks, especially in Asia, Japan and emerging markets."

In terms of US-China relations, Stephen Innes, chief global market strategist at Axi, noted that a surprise from Dr Yellen's comments to the Senate on Tuesday was how forceful her language was on China.

"Usually careful and diplomatic, Dr Yellen was almost confrontational to China," he said.

Others in the markets also observed that trade tensions may not disappear under President Biden.

Esty Dwek, head of global market strategy, dynamic solutions at Natixis Investment Managers, said: "We expect the underlying tensions between the US and China to remain at least during the beginning of the new presidency."

However, she noted that Mr Biden would likely be a more traditional and predictable president, which could result in more forward guidance and stability in terms of how US-China trade relations will evolve.

While stock markets have cheered the idea of stimulus from the new administration, Robert Carnell, regional head of research, Asia-Pacific at ING, said that investors may also want to be a bit careful about what they wish for.

READ MORE:

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