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(Bloomberg) — Donald Trump’s election victory is seen changing the course of near-term money flows for three of Asia’s largest equity markets as tariff risks loom large over Chinese assets.
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Market watchers see the possibility of funds flowing into India and Japan while investors assess Trump’s anti-China stance, with the president-elect earlier having threatened to put tariffs of as much as 60% on Chinese goods. Morgan Stanley just reiterated its preference for the two nations’ shares over China’s.
India, viewed as a manufacturing alternative to China, is appealing to investors for its relative immunity to global risks given a domestic-driven economy. Japanese stocks are seen as indirect beneficiaries of Trump’s reflationary economic policy — which is expected to keep interest rates high, thereby boosting the dollar and weakening the yen to the advantage of the Asian nation’s exporters.
“Supply chains have been moving away from China and that helps not only Japan and India but also other countries, particularly in Southeast Asia,” said veteran emerging-market investor Mark Mobius. “India is the big beneficiary since only India’s workforce can match the Chinese in numbers and labor costs. With Trump maintaining or even extending trade restrictions on China, this will be positive for India.”
That suggests Wednesday’s price action in Asia is likely to have been a sign of things to come. As it became clear that Trump will return to the White House, the MSCI Japan Index and the MSCI India Index rallied at least 1.5% each to cap their best day so far this quarter, while the MSCI China Index slumped over 2%.
The threat of tariffs is seen complicating Beijing’s efforts to revive the economy and lift market sentiment through a series of stimulus measures that began late September. This makes the nation’s ongoing legislature meeting all the more crucial for investors.
“Should China’s anticipated stimulus announcements be less meaningful than expected, we believe investors could also rotate China exposure into Japanese equities which was seen prior to China’s initial round of stimulus announcements,” Morningstar Inc.’s analysts Lorraine Tan and Kai Wang wrote in a note.
Chinese stocks were already under pressure in the run-up to the US election, with the rally triggered by a monetary policy blitz cooling in the absence of an impressive plan for fiscal spending. The CSI 300 Index surged nearly 35% from a September low through Oct. 8, but has fallen about 5% since.