Asia Centric by Bloomberg IntelligenceThe 2024 US election is set to be a rematch between Joe Biden and Donald Trump, setting the stage for a heated several months. So why should investors across Asia start tuning into the election run-up? And is there any hope of salvaging the US-China relationship with either candidate?
David Chao, Global Market Strategist (Asia Pacific) at Invesco, joins co-hosts John Lee and Katia Dmitrieva with his insights on what the US election could mean for Asian markets.
You're listening to Asia Centric from Bloomberg Intelligence, the podcast that pulls back the curtain on global business so you can invest better across the Asia Pacific rim. I'm John Lee in Hong Kong and welcome Katya Dmitrieva, asia economics correspondent for Bloomberg News. She also spent six years in Bloomberg's Washington, DC Newsborough before relocating to Hong Kong. Welcome to Asia Centric, Katya.
Thanks John, and I can't think of a better time to join than talking about the US elections today. It's shaping up to be one of the most divisive presidential races in recent years, and there's obviously significant applications for both the US and global economy.
What would a Trump or Biden presidency mean for Asia's financial markets? Will geopolitical tensions with China continue to worsen under both candidates?
Here to talk about the geopolitics the election rate is David Chow, global market strategist at a Vasco.
Welcome David, great, thanks for having me.
David. Were now at the end of May, It's about six months away from the US election. It still seems pretty early yet to be talking about the election, but We had a conversation two weeks ago in Singapore's Bloomberg office, and you said the opposite. Why should investors be thinking about this right now?
I think that investor should be thinking about both the US elections and the broader geopolitical framework of what's going on. I think that there are very significant broader forces at work, and I think that whether if it's a turn in words by many countries kind of marking the death of globalization, if that's really what's going on, I think that it's going to be reflected in the themes that are coming up in the US election. I think that investor should be concerned about this significant pivot that we're experiencing right now.
So take me into your world. I mean, how are you thinking about election? How are you advising on the election in terms of strategy, in terms of investment.
Well, I think that ultimately, when we look at the stock market data, bond market data, it shows that markets ultimately shrug off who's in power, whether if it's a Democrat or Republican, US markets have tended to do well. It is what I would consider an overhang for investors as we head into the election. Many questions abound in terms of the policy continuity. Is this going to be another Biden two point zero or what's the potential Trump two point zero going to look like? So I think that that certainly is going to be front and center. But when it comes from a markets perspective, especially US market, there really is no rhyme or reason as too which type of candidates and power and the ultimate impact that we'll have on US markets.
So tell me what that means, because if you think about a Republican president, Democrat president, but also the specific candidates that we have in front of us right now, you would you know, when we had a Trump presidency, markets were quite volatile. So is that potentially a risk factor as well? Or are you saying it doesn't matter at all.
I think that initially when the tariffs were placed on by Trump a while back, we certainly had more market volatility in the Greater China area, and that makes sense because tariffs have a direct commercial impact and an economic impact, and so I wasn't surprised that we saw a bit of volatility. But since then, Chinese markets and many of the Chinese companies that were hit by these tariffs have largely shrugged off the tariff risk. But I think going forward it's going to be quite interesting because I think that Trump has announced that he plans on fighting for more tariffs, not only from China but other parts of the world. And I think that this certainly is going to be environment where we can see a bit of market volatilety, especially in the Greater China area.
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I don't know if it's anti China, but there's certainly a lot of distrust over China. Surveys will tell you that the older you get, the more you kind of see China as a potential threat, and also the more Republican conservative you are, the more likely you are to see them as a threat the country in the economy. So I wonder if that's something that investors should be looking at too. Is this sentiment function not just how assets will move, but what does this mean for consumers? What does this mean for spending? What does this mean for inflation? Is that something that they should be keeping in mind as well.
I think that the anti China rhetoric has morphed into something bigger, which is kind of the anti free trade rhetoric. I don't know there's anyone left in Washington, DC that's pro free trade or pro globalization. It seems like this is a more key trend that we're picking up on. And I think that when it comes to the different candidates, Trump is going to be a lot more protectionist and he'll erect, you know, more borders in order to make the US more isolationist, whereas I think that Biden is going to be a little more strategic in terms of who, you know, he wants the US to be trading with. But overall, if this goes back, this harkens back to my initial point that I think that there is a pivot in the global economy going on, and I don't think it's driven by, you know, souring ties between the US US in China. In fact, I think that ties have actually improved between US and China compared to six months ago. We are seeing high level dialogue between Biden and She at APEX San Francisco, and I think that ultimately this is a dynamic that bears watching. But I think the more important dynamic is in terms of how nations around the world have become less dependent or trying to decouple themselves from global trade.
I'm curious about your comment on US and China actually being closer now than before. We had Treasury Secretary Jennet y'all in here, followed very closely by Blinken talking about the issue of overcapacity. So it seems like this issue of China making too much stuff is still very much a risk for other countries, at least how they see it, for what we would call dumping of goods and driving those prices down for local companies. So the sort of geopolitical tensions, would you say that your expectations are that those tensions would intensify under Trump, because, as you said in the past few months, we've seen at least a little bit of dialogue or movement for the Biden administration.
Sure, it's interesting that certain narratives take hold. You know, six months ago it was all about Taiwan and the risk of Taiwan Taiwan presidential elections, and now it's about China, like over capacity and anti dumping issues especially in places like Europe on things like electric vehicles and batteries. So let me just point out that the issue of over capacity, I would take that any day over say, like the Taiwan issue when it comes to threats to markets, right, Because when it comes to overcapacity, this is a commercial issue. This could be handled through a negotiation of tariffs or or removal of subsidies or things like that. And so I think that from a market risk perspective, this is a lot more palatable than something that you cannot quantify the risk of. Now when it comes to over capacity, yeah, you know, I've read things that China is trying to grow their economy through industrial or manufacturing spend and investments, and I think that's possible, right, because the property market in China remains very weak. That has also translated into our kind of household sentiment and consumption. We haven't seen those propellers really pick up. And so the area of the Chinese economy where it's strong is on the industrial production side, exports and manufacturing, and the global macro environment has actually picked up. We're seeing global growth reaccelerate and that's been able to help China with its kind of deflationary price levels. So I think that they at least have this one propeller that's firing quite well in China, though it certainly is at the ire of many other trading partners, like in Europe and other parts in Asia. But let me just say that while the US can't afford to be protectionist, Europe and China cannot, and so I think that ultimately these two sides will continue to work out and negotiate a solution.
What about the different sectors, you know, President Biden seems to really be focused on a lot of clean energy. What would a Trump presidency mean is a certain sectors that could potentially outperform others. Well, let me just.
Touch on your first point about Biden being associated with clean energy. I mean, just four years ago, Biden ran on a policy front where he was championing green energy causes in the US. But fast forward four years later, he just placed tariffs on Chinese evs and alternative energy solar panels and things like that, And so it's quite interesting.
That his policy agenda has shifted and.
Whether Biden will continue to be associated with renewable energy businesses. From a macro level, yes, yes, I think that's fair. But if you look at energy stocks versus green energy stocks, which one performed better? Actually, energy stocks oil stocks have done quite well under Biden when compared to Trump. And perhaps that's because of the Russia Ukraine war that's happening.
But my point is that one.
Has to take it with a grain of salt when it comes to which candidate would be better for which industry. Now, from a top level view, I think that markets will initially think that Trump would be better for the economy because he's likely to cut corporate tax rates, he has been advocating for looser monetary policy, easier financial conditions, someone like Biden Biden two point zero would probably raise taxes for corporates and perhaps, you know, continue to focus on things like green energy and immigration reform.
So if Trump is arguably stronger for the US economy. What's the implications for the US dollop was obviously that really matters to a lot of Asian currencies and economies.
Well, I think that we could have a period where there's a bit of uncertainty in terms of what his policies are going to be. And remember he has come off as quite a volatile president in terms of what he says and then what's ultimately enforced and implemented. But I think that the dollar could strengthen because of this. There could be a bit of a period of volatility, and US all are tends to strengthen during policy and certainty and volatility. But I think that ultimately there really is no rhyme or reason in terms of dollar strength of dollar weakness as to who's in power. It's very much tied more to monetary policy and the path forward. What I do worry about is that Trump has wanted to strength the independence of the FED from the executive branch. I think that would certainly not be good news.
And since we're talking about the dollar, can we talk about some other assets as well? What does that imply for not just Asian currencies but also bond yields, commodities. There's certain things that you'll be keeping your eye on closer after the election.
Sure, I think that when it comes to potential tariffs, that a perspective Trump two point presidency. You know, there has been a lot of talk on further tariffs on things like steel, aluminum, paper, These industries could see a bit of volatively, but you know, it could strengthen American corporates, you know, those that are in these industries, as Trump does the biding for them in terms of picking off the competition. But I also think that US growth is likely to accelerate more quickly under Trump, especially if we do get additional tax breaks for corporates, and if financial conditions become easier.
There should boost US equities.
I think the US markets are likely to rally more meaningfully with the Trump presidency. I think that markets are kind of a do nothing if Biden wins the second round, you know, just given Trump is perceived to be more pro business. But I think that ultimately it's more the monetary policy path that matters, not US elections. For for market, if I look for the next six to twelve months, is.
There an argument to be made that if we had a presidency that manufacturers should be worried because we had a huge industrial policy under Biden that did help a lot of ev companies and has spurred construction and hiring, and I wonder how investors and how markets should be looking at that potential risk. Let's not even talk about the sixty percent tariffs, right.
We've seen a significant amount of stimulus flow over the past few years from the Biden White House through things like the Infrastructure Investment and Jobs Act, the Chips and Science Act, as well as the Inflation Reduction Act, and that has really led to the ballooning of the US deficit. Around sixty seventy percent of the current US deficit came over the past four or five years, and that has really led to persistent inflationary pressures that the US economy faces. One could argue that the re activation of industrial policy in the US is a direct response of what China has been doing. Just years ago, it would have been unimaginable to think that the US government would help fund, or help subsidize or give stimulus to very profitable industries like the semiconductor industry. But I think that ultimately what's playing out is that industrial policies around the world have become a lot more robust. Governments have started to get more involved, and I think that that kind of hearkens back to my initial point that this free trade las a fair market attitude that's really been shifting, and this is a pivot towards a new horizon that investors should be prepared for.
David, we talked a lot about US and China relations, but what does a US presidency candidate mean to other parts of Asia, like India, Japan. Is there any difference.
Well, there's a common misperception that a Democrat president is better for, you know, from.
A global leadership role.
I don't know if that's true, and perhaps that's more on a kind of a few basis, But I don't think that relations are ultimately going to sour significantly. For example, like even under the Trump presidency, he established the Quad, he established other bilateral relationships. He had a very good relationship with Japan and Australia. So I don't think that Trump is going to be one hundred percent isolationist. And also if you think about Biden and what he's done there, I think Biden's been a lot more strategic in terms of the allies that he wants to spend more resources and to engage more with the US. But I think with two wars, one in Europe one in the Middle East, which we haven't seen this dynamic in decades, I think that priorities really lie there versus the APEC region.
So how do you position your portfolio? Is there any difference between if Trump was president or Biden was announced as president?
I don't think so. We've done many studies on stock markets, both MSCI Asia MSCI World US talk markets in terms of how well they perform either under a Republican or Democrat president, and there is really no rhyme or reason. But I will say that markets tend to rally after the election the twelve months after the election because I think it is a bit of an overhang in terms of whether we're going to see policy continuity, whether there's going to be additional you know, any uncertainties, or if there's going to be any issues in terms of the inauguration of the next president or not. So I think that investors may be sitting on the sidelines on cash heading into the election, but I think that risk assets are likely to rally after the election.
Yeah, David. Before I let you go, I'll know that you used to live in Hong Kong for many years, then you recently relocated to Singapore. What's the rest now?
Well, I think that I lived in Hong Kong for eleven years and it was a great time. I've never lived anywhere else for so long in my personal and in my adult life, so Hong Kong really feels like home. But change is also good. Having experience living in both Hong Kong and Singapore. They're both financial bms in Asia, and I think that having that experience is good. I think Hong Kong will continue to mean a very important kind of a banking hub, especially as Chinese companies look to raise offshore capital. Singapore appears to be your strengthening as a wealth hub as an investment management hub, so I think working in both cities can only lead to good things.
It's been a fascinating conversation with David Chow, global market strategist and Invesco, and also thanks for Katya to also be joining.
Thanks Chan, Thanks Katia, thanks for having me.
I'm John Lee. This podcast was produced by Clara Chen and you've been listening to the Asia Centric podcast
