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Trump’s Return Could Boost Asian Markets, Particularly in China and Japan

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As President Donald Trump returns to office, Asian markets, including China, appear poised for resilience, with investors optimistic that the region’s economy can withstand potential tariffs and trade tensions better than Europe. While European sectors like automotive and renewables experienced declines, Asia’s financial markets displayed steadiness, underscoring confidence in the region’s ability to adapt to Trump’s trade policies.

Analysts note that Asia’s supply chains and export markets are structurally better equipped to navigate protectionist policies. China, in particular, is expected to counterbalance any potential external pressures by bolstering domestic demand, while India’s robust growth continues to attract investment. Japan’s financial markets also showed steady activity, with significant buying in industrial and financial sectors. Shinji Ogawa, co-head of Japan cash equities sales at J.P. Morgan in Tokyo, highlighted this investor confidence, attributing it to Japan’s anticipated interest rate hikes and economic measures expected from an upcoming policy meeting in China.

Historically, Trump’s trade policies led investors to favor U.S. equities, drawing funds from Asian markets, especially Hong Kong. However, those with diversified portfolios are now retaining their Asia investments. Ken Peng, head of Asia investment strategy at Citi Wealth in Hong Kong, believes that current economic conditions will likely sustain growth-focused investments in Asia, particularly in India, where economic momentum remains strong.

In Japan, stocks for automakers, banks, and capital expenditure-sensitive heavy machinery companies surged, indicating investor preference for industries set to benefit from renewed investment. In Vietnam, anticipation of expanded manufacturing boosted shares in companies such as Becamex, a key industrial park operator, while Kinh Bac City, which has a business relationship with Trump’s private conglomerate, also saw gains.

China’s Better Preparedness for Trade Tensions

During Trump’s first term, China faced significant economic strain from trade tensions, which impacted both growth and the yuan. This time, however, investors believe China is more prepared for Trump’s policies. Charles Wang, chairman of Shenzhen Dragon Pacific Capital Management, pointed out that China is now better equipped both economically and technologically to handle trade challenges.

Wang has taken a cautious approach, divesting from Chinese auto parts companies due to anticipated tariff impacts, but he remains invested in China’s property sector, expecting that the government will support it regardless of trade conditions. Further, China’s strategic pivot toward domestic demand has reduced the U.S.’s share in China’s export market, minimizing direct trade risks and potentially encouraging more supportive domestic policies. According to Dong Baozhen, chairman of Beijing-based asset manager Lingtong Shengtai, heightened tariffs may reinforce China’s focus on internal demand, fostering policies that encourage local economic growth.

Capital Flows and Potential Opportunities

Despite recent fluctuations in the yuan, foreign long-only funds purchased $11.1 billion in Chinese equities through October, according to Morgan Stanley, with outflows remaining limited. Investors anticipate that Beijing will soon unveil a stimulus package, providing further stability.

Trump’s proposed domestic tax cuts may also benefit Asian markets indirectly, potentially boosting demand for Chinese goods. Some analysts see Trump’s isolationist policies as an opportunity for China to strengthen relations with other global markets, including Europe. Robert St Clair, head of investment strategy at Fullerton Fund Management, noted that Trump’s pragmatic approach as a businessman might lead him to manage tariff levels carefully, recognizing China’s significant role in high-value industries.

Ultimately, while challenges from U.S.-China trade dynamics remain, many investors are confident that China and broader Asian markets are better equipped to manage them, with Trump’s policies potentially opening new avenues for growth across the region.

 

China’s Industrial Profits Plunge in August, Deepening Economic Woes

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China’s industrial profits faced their steepest decline this year, contracting sharply by 17.8% in August after a brief recovery of 4.1% in July, according to the National Bureau of Statistics (NBS). This marks the biggest monthly slump in 2023, reflecting mounting economic pressures as business activity continues to slow. For the first eight months of the year, earnings grew by a mere 0.5%, compared to the 3.6% growth seen in the January-July period.

The NBS attributed the downturn to several factors, including weak market demand, the adverse effects of natural disasters like high temperatures, heavy rainfall, and floods, and a high statistical base from last year. Particularly impacted were the automobile and equipment manufacturing industries, contributing to the sharp contraction in profits.

According to Zhou Maohua, a macroeconomic researcher at China Everbright Bank, this slump underscores a growing imbalance in China’s economic recovery, exacerbated by weak domestic demand. The sluggish industrial performance is compounded by broader economic concerns, including uncertainty over job security, a faltering property market, and declining investment.

Earlier data in September highlighted weak consumer demand, which remains a significant bottleneck for the economy. Inner Mongolia Yili Industrial Group Co, a leading domestic dairy company, reported a 40% drop in net profit for the second quarter, underscoring the challenges businesses face in an increasingly cautious market environment. NBS spokesperson Wei Ning echoed these concerns, citing the complexity and volatility of external factors further clouding the economic outlook.

In an effort to revive the economy, China’s central bank introduced the most aggressive stimulus package since the pandemic, including a 50 basis point reduction in banks’ reserve requirements. However, analysts warn that more extensive fiscal support will be necessary to restore confidence and stimulate demand.

Chinese leaders responded with a pledge of “necessary fiscal spending” to meet the country’s growth target of 5% for 2024, which analysts have downgraded below the official forecast. A major component of this fiscal stimulus includes the issuance of $284 billion in sovereign debt, some of which will be used to provide a monthly allowance of $114 per child to families with two or more children, in a bid to boost household spending.

Despite these efforts, industrial sectors remain strained. State-owned firms saw profits decline by 1.3% from January to August, while foreign-owned enterprises recorded a modest 6.9% rise. Private companies fared slightly better, posting a 2.6% increase over the same period.

The NBS data tracks companies with annual revenues of at least 20 million yuan ($2.83 million) from their main operations, signaling that even larger firms are not immune to the broader economic challenges gripping China.

China’s Consumer Inflation Rises in August as Producer Price Deflation Deepens, Driven by Weather Disruptions

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China’s consumer inflation rose in August to its highest rate in six months, primarily driven by rising food costs due to extreme weather conditions, including floods and heatwaves, rather than a recovery in domestic demand. The consumer price index (CPI) increased by 0.6% year-on-year in August, slightly up from July’s 0.5%, but fell short of economists’ forecasts of 0.7%. The spike in food prices, which surged 2.8% from the previous year, was attributed to weather-related disruptions affecting 1.46 million hectares of crops, according to the National Bureau of Statistics (NBS). Despite the increase in CPI, core inflation, which excludes volatile food and fuel prices, dropped to its lowest level in nearly three and a half years, signaling underlying deflationary concerns. The producer price index (PPI), a key gauge of industrial profitability, fell by 1.8% in August, marking the largest decline in four months and exacerbating concerns about deflationary pressures. Economists attribute this to a persistent production surplus and weak demand. China’s yuan weakened and stock markets fell as economic worries intensified. Calls for further fiscal and monetary easing are growing, as analysts warn that existing policies, including a $41 billion national campaign to boost consumer confidence, have so far been insufficient to stimulate demand.