President-elect Joe Biden’s triumph over incumbent President Donald Trump has proved a boon for U.S. investors as markets celebrated a return to some certainty last week.
But investors in Asia could also stand to benefit from a Biden presidency as shifts in policy and greater global conformity spell good news for markets in the region, according to experts CNBC Make It spoke to.
Asian stocks jumped last week on news of the former vice-president’s win. MSCI’s broadest index for the region (excluding Japan) has continued to climb since the announcement.
The recent rally signifies a shift toward “risk-on sentiment,” with investors trading safe-haven assets for growth-oriented alternatives amid renewed optimism, said Singapore-based investment platform StashAway.
However, Biden and Trump’s opposing international agendas have made for a “bipolar” political environment, noted its chief investment officer Freddy Lim, who expects there will be some clear “winners as well as losers.”
Improved U.S.-China relations
Perhaps most consequential to international markets under a Biden administration will be a reset to U.S.-China relations.
Though the longtime politician is expected to push China to improve its international trade policies, his approach is likely to be less heavy-handed than his predecessor’s. Where Trump relied on unilateralism and tariffs, Biden is expected to remove levies and adopt a more collaborative approach, said Lim.
If Biden can adopt a more relaxed policy … many industries in eastern Asia, not only China, will benefit.
That would be a win not only for export-led businesses in the world’s two largest economies, but also for other Asian nations that will no longer be forced to “pick a side,” he noted.
Reo Liao, an analyst at trading platform IG Markets agreed, saying that improved U.S.-China relations will bring benefits well beyond those two markets.
“If Biden can adopt a more relaxed policy on the global trade — e.g. lifting more trade tariffs and allow U.S.′ major trading partners to deal with U.S. in a less rigid way — many industries in eastern Asia, not only China, will benefit from this move,” said Liao.
Consumer goods, real estate, energy
Consumer goods stocks — particularly producers of mid-to-high-end products like electronics, apparel and automobiles — stand to gain the most from such a policy shift, said Liao, noting that export-led industries were among some of the hardest hit by tariffs.
Lorraine Tan, Morningstar’s director of equity research for Asia agreed. She said companies like luggage manufacturer Samsonite will see a “material direct benefit from a reduction in U.S. tariffs.”
In a note released last month, the investment research firm said Asian stocks could be undervalued by around 7%. In addition to consumer goods businesses, Tan said Morningstar sees particular opportunities in the energy and real estate space, with property developers Sun Hung Kai in Hong Kong and CapitaLand Mall Trust among top picks.
Tech stocks, meanwhile, could face a bumpy road going forward amid increased regulation in both the U.S. and China. Still, the global push toward 5G is likely to prove a win for major Asian tech firms including SK Hynix, Yageo, Tencent and Alibaba, said Tan.
The pandemic in focus
The change in U.S. administration is, of course, set against the backdrop of the coronavirus pandemic. To be sure, the health of the economy and the wider investment outlook will remain very much dependent on the course of the virus over the coming months and into 2021.
“Covid-19 remains the main driver for stock market performance over the next six months,” Morningstar’s report noted. “We could see some choppiness from uneven vaccine news over the next few months and the risk of extended shutdowns,” Tan added.
Now is more important than ever to be more cautious and more diversified.
As such, experts recommended taking a diversified approach. StashAway said it aims to retain its “all-weather strategy,” which seeks a balance of capital protection and returns.
Indian stock brokerage Zerodha said it will employ a more cautious stance, however. Though vaccine development progress, including for India’s own Biological E., spells good news, chief investment officer Nikhil Kamath said the platform will be entering the New Year with “as much as 50%” of its portfolio hedged (an investment technique designed to offset risk).
“Even though we’ve seen markets improve, we do see a broad slowdown in the momentum of the global economy and we would argue that now is more important than ever to be more cautious and more diversified in the portfolio allocations,” said StashAway’s Lim.
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