• Biden May Spur Flows To Asia Already Buoyed By Virus Success

    (Bloomberg) -- Asia’s swifter exit from coronavirus lockdowns has helped it to suck investment funds away from other emerging markets.

    Now Joe Biden’s U.S. Election win may accelerate the trend.

    Investors and analysts from State Street Global Markets to JPMorgan Chase & Co. Are predicting a Biden White House will take a softer stance on trade with Beijing, burnishing the appeal of north Asia’s export powerhouses just as risk appetite is on the rise. While China, Taiwan and South Korea were among the first to shake off pandemic restrictions, Latin America, Europe, the Middle East and parts of Africa are still wrestling with the virus. © Bloomberg Allocation Winner

    “President-elect Biden’s win has been embraced by markets as it provides a narrative of desire for reconciliation, diplomacy and more international cooperation,” said Singapore-based Daniel Gerard, a senior multi asset strategist at State Street. “Asia, particularly EM Asia, will be a strong beneficiary of the current environment due to its relatively better handling of the pandemic, its exposure to technology and recovering consumers, and a recovering global trade story.”


    Asia has dominated flows to emerging-market exchange-traded funds this year, receiving $8.4 billion, most of which has gone to China and Taiwan, according to data compiled by Bloomberg. By comparison, investors have bought just $671 million of funds tracking the Americas, while the EMEA region has registered outflows of $736 million.

    “The implications of a widening U.S. Deficit, possibly more predictable U.S. Foreign policy and lower bond yields is a weaker U.S. Dollar,” said Kerry Craig, a global market strategist at JPMorgan Asset Management in Melbourne. “When combined with the greater success in handling the Covid-19 crisis and the continued recovery in the global goods and manufacturing cycle, this bodes well for the markets that have performed well so far this year: Korea, Taiwan and China.”

    Less Hostile

    Relations between the U.S. And China have deteriorated since Donald Trump’s election in 2016. He waded into a tariff war, imposed restrictions on China’s leading technology firms, threatened to sever financial links, and closed China’s consulate in Houston. While relations aren’t expected to be as friction-free as in the past, a Biden administration could be more predictable and less overtly hostile than the Trump administration.

    “China’s markets and asset prices would likely benefit from lowered uncertainty,” Citigroup Inc. Economists led by Li-gang Liu said. “Expectations of a partial removal of tariffs and a toning down of tech sanctions would likely boost business sentiment and manufacturing investment in China.”

    The Chinese yuan has posted the second-biggest gains this year among emerging market currencies, followed by the Philippine peso and Taiwan dollar. The U.S. Dollar-denominated bonds of China, South Korea and Taiwan handed investors returns about 5% this year, according to Bloomberg Barclays indexes. The stocks of the three north Asian nations are among 2020’s top performers, with returns of about 15% in dollar terms, while the benchmark MSCI emerging market equity index rose 6.6%.

    The successful development and deployment of a Covid-19 vaccine can test the allocations made to Asia amid the region’s relatively better handling of the pandemic, and benefit the wider emerging-markets space. © Bloomberg Consensus earnings estimates for Asian EMs have recovered from Covid-19 shock

    Still, when it comes down to fundamentals, Asia is the only region whose consensus earnings estimates have fully recovered from the Covid-19 shock and turned positive for the year, according to data compiled by Bloomberg. That has also left Asia’s developing countries with the most expensive price-to-earnings ratios versus other regions since September.

    “Asia will continue to perform well,” said Paul Sandhu, BNP Paribas Asset Management’s Hong Kong-based head of multi-asset quant solutions and client advisory for the Asia Pacific region. “Aside from the overall growth outlook in Asia being sound, the diversification trade where investors are shifting from more concentrated developed markets to more diversified emerging markets will continue. Asia being the most attractive of the emerging markets currently, it will see a substantial share of that flow.”

    (Updates the market prices in the ninth paragraph)

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