By Ese Erheriene and Gregor Stuart Hunter
HONG KONG--Investors in Asia will have their first chance to respond to President Donald Trump's inauguration speech when markets open Monday, with many of them remaining optimistic about the market outlook as the new U.S. administration takes office.
In his inauguration address on Friday, Mr. Trump continued with the nationalistic tone that characterized his presidential election campaign, a tone that has stoked fears in Asia of rising protectionism that could hurt the region's exporters. Mr. Trump previously promised to pull the U.S. from the Trans-Pacific Partnership, a regional trade agreement with Asia that was a signature policy of former President Barack Obama.
But investors say they are prepared to give Mr. Trump time to make his policies on trade and other matters clear. Meanwhile, they are optimistic that the broad rally in global markets since the U.S. election can be maintained, given Mr. Trump's agenda of tax cuts and infrastructure spending.
Financial markets in the U.S. broadly rose on Friday following Mr. Trump's speech. The Dow Jones Industrial Average closed up 0.5%, while the S&P 500 and the Nasdaq Composite both added 0.3%. The WSJ Dollar Index fell 0.3% against a basket of 16 currencies after earlier rising as much as 0.4%.
Mr. Trump's sometimes antagonistic rhetoric should be viewed as the opening salvo in efforts to strike deals, and not necessarily reflective of his desired outcome, said Mark Tinker, head of AXA Framlington Asia.
"It's a new way of working for us," he said. "Most of the statements that we're getting tweeted from the White House bathroom will be the start of negotiations, rather than final policy."
That means paying attention to what Mr. Trump does in terms of executive orders that affect particular industries, rather than what he says he will do, Mr. Tinker said.
Several economists have warned of the risks of a trade war if Mr. Trump imposes higher tariffs on imports. Last week, Bank of America Merrill Lynch said the possibility of a serious escalation of U.S.-China trade tension represents "the biggest risk to the global economy in 2017."
Others believe Mr. Trump represents a new kind of challenge for financial markets that could spread volatility.
Mr. Trump will represent a "shock to the system," said Gavin Parry, managing director of Parry International Trading. Mr. Trump's vocal stance on the detrimental effects of the stronger dollar and the unpredictability of his leadership style is likely going to upset "the traditional views and perceptions and philosophies around price discovery and markets."
For now, investors are looking past such warnings, with the inauguration speech having done little to shift their views.
"Markets tend to be cautious before the event and if there are no materially adverse developments, markets will tend to be less fearful after," said Woon Tian Yong, an investment analyst at Phillip Futures, who stayed awake late in Singapore to stream Mr. Trump's speech before trawling the updated White House website for further policy clues.
One factor that encourages regional fund managers is that stocks in Asia look relatively cheap, said Joshua Crabb, head of Asian equities at Old Mutual Global Investors, and have recently been trading at a discount to their global peers.
"If Trump's America works, it'll be because it reinvigorates the animal spirits," he said. "If people start feeling less pessimistic about the world, there are a lot of cheap assets in places like Asia that won't remain cheap."
Investors remain broadly positive on the commodities and construction sectors given Mr. Trump's commitment to improving America's aging infrastructure system. Conversely, analysts said investors in the immigrant-reliant technology sector should brace themselves following Mr. Trump's talk of "rebuilding our country with American hands and American labor."
To be sure, there are areas of confusion as Mr. Trump takes office, notably in the currency markets.
Mr. Trump's economic plans have heightened expectations that U.S. interest rates will need to rise at a brisker clip this year to contain inflation. In turn, that has helped push up the dollar against a broad range of currencies, notably the Japanese yen and the Chinese yuan.
But Mr. Trump is also keen for U.S. exports to become more competitive globally and recently signaled he felt the dollar had become too strong.
"The dollar is on an upward trendbecause of the Fed tightening policy, but because Donald Trump says a strong dollar is not good for exports, that makes it very contradictory," said Margaret Yang, a market strategist at CMC Markets. Still, she said the dollar is likely to keep rising and "emerging currencies like the Chinese yuan, the Indonesian rupiah and the Indian rupee are going to suffer from outflows."
Write to Ese Erheriene at firstname.lastname@example.org and Gregor Stuart Hunter at email@example.com
(END) Dow Jones Newswires
January 22, 2017 04:44 ET (09:44 GMT)
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