Asian FX, Chinese Stocks To Be Hit by Trump Costs: Analysts

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(Bloomberg) — Markets are likely to remain under pressure as traders reassess their positions after President-elect Donald Trump announced he would impose tariffs on trade in Mexico, Canada, and raise tariffs on China.

Asian currencies such as the Korean won and the Thai baht, which are seen as proxies for China, are likely to underperform, market participants said. Stocks in China, Mexico and Canada are also set to decline, especially those that export heavily to the US, they said.

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Here’s what analysts and strategists in Asia are saying:

Andrew Ticehurst, senior strategist at Nomura in Sydney:

“Tax talk is raising fears of global inflation, creating concerns about global growth and increasing geopolitical uncertainty. The market’s knee-jerk reaction is a stronger US dollar, higher yields and weaker equities”

“It is interesting that Trump seems to put Canada and Mexico next to his list of trade candidates, especially since there is a trade agreement between three countries (USMCA). Our American team notes that Trump could use emergency powers to try to impose tariffs on Canadian and Mexican goods, but we think there would be a good chance of a court challenge if Trump goes ahead with that.”

A strong Greenback

Carol Kong, currency strategist at the Commonwealth Bank of Australia in Sydney:

Markets are poised for more tariff headlines and “this uncertainty about US trade policy will keep markets tough, so expect the AUD and others to at least hold on to their declines,” he said. “Trump’s threat of more tariffs will give another leg up on the US dollar. Aussie and kiwi will be dragged down because of their links to the Chinese economy”

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Mahjabeen Zaman, head of FX research at ANZ Banking Group in Sydney:

“We will probably see the dollar remain strong for the time being, as the markets absorb this news in the short term. However, we cannot fully discount the end-of-year season for the US dollar which may see a lower valuation of the dollar rally. But the general bias remains a positive dollar, although I would argue a lot has already happened in prices now “

Asia FX to Fail

Kiyong Seong, macro strategist at Societe Generale in Hong Kong:

“Even the US administration will put tariffs on value and inclusion, the market tends to front-load future tariff moves in our view. We still believe there will be a different impact on EM currencies, depending on individual tax rates and we expect the yuan to underperform across the EM Asia FX area”

Alex Loo, chief strategist at Toronto-Dominion Bank in Singapore:

The first effect of Trump’s announcement is that “the US dollar is rising, reflecting the impact of global trade tensions and the accompanying tariffs.” Given the prospects for disruption to the status quo, we would expect Asian currencies to underperform, particularly the Korean won, Taiwan dollar and Singapore dollar given the trade-oriented economic environment.”

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Mitul Kotecha, head of Asia FX & EM macro strategy at Barclays in Singapore:

“EM and Asian FX, especially trade-related funds took a hit from President-elect Trump’s tax comments this morning and may trade later. It will clearly add pressure on the yuan and related proxies. Sensitive Chinese currencies such as the Korean won, the Taiwan dollar and the Thai baht are at high risk”

The PBOC supports the Yuan

Frances Cheung, strategist at Overseas-Chinese Banking Corp

“Expect to see CNH’s restructuring and spending being sent to smoother areas. Chinese government bonds may benefit from other safe havens. “

China Stocks Pressure

Rajeev de Mello, global senior portfolio manager at Gama Asset Management SA

“It shows that tariffs will be the preferred tool for implementing foreign policy. I would expect Chinese stocks to come under more pressure as the timing of this announcement is earlier than expected. The President-elect did not even have to wait for his inauguration to start fulfilling his campaign promises”

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Lynn Song, Greater China chief economist at ING Bank in Hong Kong:

“The immediate impact will likely be negative on the currencies and trade of China, Mexico, and Canada. Companies with high exposure to the US market will be disproportionately affected. “

“This round of tariffs is fueled by the importation of fentanyl, and the goal is to get China and Mexico to help stop the importation of fentanyl. This shows that there is room to negotiate going forward on tariffs, and in our view it shows that we are unlikely to see a 60 percent tariff in China any time soon.”

—Courtesy of John Cheng, Betty Hou and Shulun Huang.

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