Tech, manufacturing and China-linked stocks on the line as Asia braces for Trump 2.0
US-China trade tensions are likely to affect the Singapore equity market, say analysts, even as US markets soar at the opening bell
ASIAN and Singapore stocks in the tech and manufacturing sector, as well as those with exposure to China, look set to take a hit in the short term as Asia contends with a Trump 2.0 presidency.
However, over in the US, investors welcomed the result. The Dow Jones Industrial Average leapt 1,307 points or 3.1 per cent about 45 minutes after the opening. The S&P 500 was up 1.83 per cent, and the Nasdaq surged 2.1 per cent. European markets edged lower. Bitcoin had earlier hit a record of over US$75,000.
With the Republicans set for a so-called “red sweep” – winning the White House as well as taking control of both the House and Senate – there may be tax cuts which are likely to boost corporate earnings, though they could widen the fiscal deficit and spur inflation.
Closer to home, analysts warned that the Asian and local stocks could be negatively affected if Donald Trump goes through with his plan to impose stricter trade restrictions on China.
The former president swept the polls on Wednesday (Nov 6) in a hotly contested election against the Democratic nominee, Vice-President Kamala Harris.
Asian markets mixed
Regional indices ended mixed on Wednesday in the wake of the election outcome.
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The benchmark Straits Times Index (STI) ended 0.6 per cent higher, and the FTSE Bursa Malaysia KLCI climbed 0.8 per cent; Japan’s Nikkei 225 was up 2.6 per cent.
The Hang Seng Index fell 2.2 per cent, and the Shanghai Composite Index dipped 0.1 per cent; Indonesia’s IDX Composite Index was down 1.4 per cent.
On the foreign exchange front, the Singapore dollar weakened against the US dollar as the greenback gained on many global currencies. The US dollar rose around 1.3 per cent against the Singapore dollar, trading at 1.33 at around 5 pm.
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Volatile equity markets, although some Singapore stocks may benefit
Analysts warned that a Trump White House, coupled with a Republican-led Congress, could spell trouble for some sectors in the Asia and Singapore equity markets.
They were broadly of the view that, in a Trump presidency, the US would take a harder line against China, leading to heightened trade tensions between both countries.
The former president had adopted an aggressive stance against China when he was the US head of state between 2016 and 2020. On the campaign trail this time around, he proposed blanket tariffs of at least 60 per cent on Chinese goods.
The proposed tariffs will have a negative impact on the Asian technology and manufacturing sector, said Daphne Tan, the director of business development at brokerage firm CMC Markets.
This could result in near-term volatility in the Singapore equity market, because the city-state’s economy is highly integrated with China’s and the broader Asian supply chain, she added.
Tan said that investors would have to deal with market volatility and identify opportunities based on shifts in US policies following the election.
“There is likely to be a period of configuration before these opportunities become clear. It could be in a variety of areas, ranging from technology and renewable sectors to bonds and real estate,” she said.
DBS Group Research said in a note on Nov 1 that a “red sweep” by Republicans, coupled with a more hawkish interest-rate outlook – in which rate cuts are lower than what is currently priced in – could heighten market volatility on the STI.
Real estate investment trusts and stocks with exposure to China, such as container port business Hutchison Port Holdings Trust and Mapletree Logistics Trust , will also be affected if the US imposes tariffs on China, said the research group.
Despite concerns over the impact that a Trump administration would have on China-exposed stocks, Martin Hennecke, the head of Asia Investment Advisory at St James’s Place Asia and Middle East, warned investors against “knee-jerk reactions” such as a blanket sell-down of China stocks.
He noted that not all Chinese companies are export-dependent. Moreover, Trump might end up treading more carefully on trade restrictions to avoid harming US businesses, said Hennecke.
He suggested that investors diversify across regional and global markets as well as asset classes.
Some Singapore companies that have invested in the US could also benefit from US onshoring efforts, said DBS Group Research. It cited ground handler Sats and ST Engineering as stocks with possible upsides.
Tech stocks Venture Corp and Frencken could also stand to benefit from technology supply-chain diversification into Asean, the research group added.
Bond yields and currency movements
Bond yields are expected to be negatively impacted under Trump, said Paul Chew, head of research at Phillip Securities Research.
He said that the US government fiscal deficit is expected to widen under Trump, to sustain US economic growth. However, doing so will raise inflation expectations and more bond supply will be needed to fund the deficit, leading to a negative impact on bond yields, he said.
Vasu Menon, the managing director of investment strategy at OCBC, said if the Republicans gain full control of Congress, US Treasury (UST) yields may rise further on inflation fears. He noted that the 10-year UST yield has already risen from 3.6 per cent in September to about 4.4 per cent currently.
“This calls for greater caution on longer-dated bonds, although the search for yield should continue to see investors seeking opportunities in bond markets, especially on any sharp pullbacks,” he said.
Bullish outlook for gold
A Trump presidency would spell a bullish outlook for gold, said strategists at Macquarie Group.
The tariffs he has proposed on China would put pressure on the renminbi, encouraging Chinese investors to use gold as a currency hedge, they said.
Oil prices
Oil prices are in “correction mode”, said Mukesh Sahdev, the global head of commodities for oil at Rystad Energy. He noted that Brent, the global benchmark for crude oil price, had ended a few weeks of gains in anticipation of increased supply from the US. Potential tariffs imposed by the US on its trade partners, including China, have also dampened demand for oil.
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