A reality check might be looming for investors optimistic about US President Donald Trump’s economic policies and that bodes well for emerging markets in Asia, HSBC head of equity strategy for the Asia-Pacific region Herald van der Linde said.
While leaders such as Japanese Prime Minister Shinzo Abe and Indian Prime Minister Narendra Modi enjoyed comparatively lengthy periods of economic strength after taking office, the US optimism that welcomed Trump’s surprise victory in November last year shows signs of fizzling out less than a month into his four-year term.
“The expectations of the markets seem to be higher than what, very often, politicians can promise,” Van Der Linde said in an interview.
With regard to Trump, “the reality check might come sooner ... maybe because we see part of the internal workings of what happens in the White House on Twitter — so we see some of the struggles that go on coming on the Twitter feed,” he said.
Emerging markets China, India and Indonesia could see gains of 10 percent or more from investors seeking alternatives.
With Trump, the “reality check might come sooner as some of the policies — the travel ban, etc — are more difficult to implement than the markets anticipated or the Trump administration anticipated,” he said.
The S&P 500 Index has edged up 1 percent since Trump’s Jan. 20 inauguration, paling in comparison with the 4.6 percent surge it experienced from the Nov. 8 election through to the end of last year.
The index’s advance has slowed since Trump began his administration with a flurry of executive orders, including a travel ban on immigrants from seven Muslim-majority nations that has been suspended by a Seattle judge.
By comparison, Japan’s TOPIX soared almost 60 percent in the five months after Abe won an election in December 2012, before posting a 20 percent correction. India’s S&P BSE Sensex jumped 20 percent to a January 2015 record high after Modi took office in May 2014.
The US dollar has weakened this year too, as Treasury yields retreated as investors questioned how aggressively and successfully Trump could pursue pledges to boost spending and curb regulations — plans that prompted bets that inflation and growth would accelerate in the world’s largest economy.
The greenback is down against every major peer this quarter after climbing against all of them between Nov. 8 and the end of last year.
Investors are now adopting a wait-and-see approach to give Trump a chance to follow through on his post-election hype, but that might also be short-lived, Van der Linde said.
The reality check looming for US markets could come by the middle of the year and would include weakness in the greenback, slowing growth in equities and declining bond yields, he said.
The MSCI Asia Pacific Index, the region’s benchmark, has risen 5.8 percent since Jan. 1. The gauge rose 2.3 percent last year, ending two years of declines.
“This could be a reset for emerging markets,” Van der Linde said.
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