US votes, Asia reacts: Investment strategies for a Trump-Harris showdown

Summary

• US election impact on Asia: The November US election introduces uncertainty, with key policies on tariffs, immigration, and trade likely to influence Asian markets, particularly China, Japan, Australia and Singapore.

• Sector implications: Stricter US-China tariffs could hurt Chinese and Australian exports, while stricter immigration policies will impact Asian tech suppliers from Hong Kong, India, Japan and China. Meanwhile, a focus on clean energy could bring increased investments in renewable projects in Asia.

• Diversification and hedging: Investors should consider diversification into non-US markets and hedging strategies against currency fluctuations and interest rate volatility to mitigate US-specific risks.

• Long-term perspective: While election cycles often introduce short-term market noise and fluctuations, maintaining a long-term perspective is essential. Staying invested with a well-considered strategy will help navigate through the uncertainties and capitalize on future opportunities.

The US election season is heating up, and while the September 10 debate gave Vice President Kamala Harris a slight edge over former President Donald Trump, the race remains tight.

Even if Harris' momentum was to build further from here, the Senate math will likely mean a gridlock in Congress if she wins. Also, Harris’ economic agenda is less clear and assumed to be similar to Biden’s but there could be some vital differences. Meanwhile, a second Trump presidency could look quite different from his first stint, as seen in his current friendship with Elon Musk, contrasting his earlier negative stance on EVs and renewable projects.

This makes it difficult to position portfolios for elections, and so below we explore key policies to watch and their potential impact on key Asian economies, regional currencies, and Asian investors.

Key policies to watch and the potential impact on Asia

Tariffs and trade

Stricter tariffs, especially on China, are more likely under a Trump administration and these could disrupt global trade. This would likely impact major economies in Asia, particularly China, which has been the primary target of US trade restrictions. Trade tensions would affect Chinese manufacturing, industrial output, and exports.

Asia’s reliance on exports and its position in global supply chains makes it highly susceptible to US trade policies. China, Japan, Australia, and Singapore are especially vulnerable to tariff fluctuations and global trade conditions, where as domestic-oriented markets may be more immune.

• Impact: Stricter US-China tariffs could hurt Chinese and Australian exporters, impacting mining and tech sectors. Singapore's trade-reliant economy may also face pressure due to disruptions in global supply chains, while domestic demand-driven economies such as India could be more immune.

• Markets and stocks on watch: China’s CSI 300 Index and Hong Kong’s Hang Seng Index (HSI) could be particularly sensitive to US-China trade developments. Australian miners like BHP, Rio Tinto, and Fortescue Metals could also be affected by lower Chinese demand due to tariffs. Singapore companies like Keppel Corp and Wilmar International could also be vulnerable to trade-related pressures.

• ETFs on watch: iShares China Large-Cap ETF (FXI), iShares MSCI Hong Kong ETF (EWH), iShares MSCI Australia ETF (EWA), SPDR S&P Metals and Mining ETF (XME).

Geopolitical risks

Trump's more aggressive foreign policy stance could heighten geopolitical tensions, particularly in Asia. Any confrontation with China or North Korea could introduce risk premiums across Asian markets. Heightened tensions might lead to reduced investor confidence and increased market volatility.

• Impact: Escalating tensions with China could affect Hong Kong and Taiwan’s markets, particularly the technology and industrial sectors. Japan and Singapore markets might also experience volatility due to geopolitical proximity and trade dependencies.

• Markets and stocks on watch: Hang Seng Index (Hong Kong), Nikkei 225 (Japan), and Taiwan’s Taiex Index. Singapore’s STI Index and SIA Engineering may face pressure as a regional hub and services provider.

• ETFs on watch: iShares MSCI Taiwan ETF (EWT), iShares MSCI Hong Kong ETF (EWH), iShares MSCI Japan ETF (EWJ).

Stricter immigration

Stricter US immigration policies are also more likely in a Trump presidency and could reduce the flow of talent and innovation, which could have implications for the tech sector across Asia. Singapore, India, and China are hubs for tech innovation, and any constraints on talent could dampen growth in this space.

• Impact: US tech companies relying on international talent, particularly from India and China, could face operational hurdles, which may also affect tech ecosystems in Singapore and Japan.

• Markets and stocks on watch: Hang Seng Tech Index (Hong Kong), and Nikkei 225 (Japan) for possible knock-on effects from restrictions on skilled migration. Singapore’s tech companies like Venture Corp and Creative Technology might also feel the pinch.

• ETFs on watch: iShares MSCI China ETF (MCHI), Invesco India ETF (PIN), Technology Select Sector SPDR ETF (XLK).

Corporate tax hikes

A potential Harris presidency may push for higher corporate taxes in the US, which would compress margins for multinational companies operating in Asia. Limited scope for a Harris clean sweep reduces the odds of corporate tax hikes, but it is one of the key policies to keep on watch, nonetheless. US-based multinationals with operations in India, Japan, and Singapore could see reduced profitability, which may weigh on investor sentiment.

• Impact: Higher corporate taxes in the US could hurt major US tech firms with significant business in Asia, such as Apple, Microsoft, and Google. This may indirectly impact local tech suppliers in India, Japan, and Singapore.

• Markets and stocks on watch: India’s Nifty 50, Japan’s Nikkei 225, and Singapore's tech-related stocks like Venture Corporation and ST Engineering.

• ETFs on watch: Invesco QQQ ETF (QQQ), iShares MSCI India ETF (INDA), iShares MSCI Japan ETF (EWJ).

Climate change focus

A Democratic administration would likely emphasize green energy initiatives, which could create growth opportunities for clean energy companies across Asia. Asian economies investing in renewables, such as China, Singapore, and India, might benefit from US partnerships or increased investment in green technologies.

• Impact: Increased investments in clean energy would boost sectors like solar and wind energy in China, India, Japan, and Singapore. Companies involved in sustainability and renewable energy projects may see positive inflows.

• Markets and stocks on watch: CSI 300 Clean Energy Index (China), India’s renewable energy sector, Japan’s clean tech companies, and Singapore’s Sembcorp Industries.

• ETFs on watch: Invesco Solar ETF (TAN), iShares Global Clean Energy ETF (ICLN), First Trust Global Wind Energy ETF (FAN), Lion-OCBC Securities Singapore Low Carbon ETF (ESG).

Fiscal risks

Both a Harris or Trump administration may increase fiscal spending, albeit in different areas. Harris is likely to focus on healthcare, infrastructure, and green energy, while Trump could push for defense, infrastructure, and possibly tech spending. Increased government expenditure can have broad implications for trade partners and industries across Asia, however it comes with risks of persistent inflationary pressures which could soften the pace of rate cuts from the Federal Reserve.

• Impact: Infrastructure and defense spending in the US could boost demand for raw materials and tech components from Asia. Australian miners may benefit from higher demand for metals, while Chinese and Japanese technology suppliers could see a rise in orders for infrastructure and defense projects. Additionally, Singapore’s engineering and tech sectors could benefit from increased infrastructure demand.

• Markets and stocks on watch: Australia’s ASX 200, China’s CSI 300, Japan’s Nikkei 225, and Singapore’s STI Index could respond positively to increased US spending. Key stocks to watch include Australia’s BHP and Rio Tinto, China’s Alibaba (infrastructure and tech services), and Singapore’s Keppel Corp and Sembcorp Industries.

• ETFs on watch: iShares MSCI Emerging Markets ETF (EEM), iShares MSCI Australia ETF (EWA), iShares MSCI Japan ETF (EWJ), iShares Global Infrastructure ETF (IGF).

Other key considerations for investors

Currency fluctuations

The uncertainty surrounding the US elections will likely cause market volatility, which would impact both stock and currency markets in Asia. A stronger or weaker USD, depending on the election result, would have direct implications for Asian currencies like the Japanese yen (JPY), Chinese yuan (CNH), Australian dollar (AUD) and Singapore dollar (SGD).

• Impact: A strong USD could pressure Asian currencies, leading to higher import costs and inflation across the region, especially in India, Japan and Singapore. A weaker USD could boost Asian exports, particularly in China, Japan, and Singapore. For foreign investors, a weaker US dollar can reduce the value and returns of USD-denominated assets when converted back to their base currency.

• FX on watch: US dollar and home currencies such as SGD, AUD, JPY, etc.

• ETFs on watch: Invesco CurrencyShares Japanese Yen ETF (FXY), WisdomTree Chinese Yuan ETF (CYB), iShares MSCI Emerging Markets Asia ETF (EEMA). For currency hedging strategies, read this article.

US interest rates

Election outcomes may also influence Federal Reserve policy, which would have direct consequences for Asian economies. Higher US interest rates could lead to capital outflows from Asia and put pressure on equities in markets like China, India, Japan, and Singapore.

• Impact: Rising US rates could lead to outflows from emerging markets, while lower US rates might boost Asian equities and attract inflows.

• Markets on watch: Indian equity markets, Chinese stocks, Singapore's STI Index, and Japanese bond markets.

• ETFs on watch: iShares MSCI Emerging Markets Asia ETF (EEMA), iShares MSCI India ETF (INDA), iShares MSCI China ETF (MCHI).

Volatility and global risk appetite

Asian markets are highly sensitive to global investor sentiment, and a contentious US election could trigger risk-off behavior. Investors might withdraw from riskier Asian markets, leading to downward pressure on indices across the region. Safe-havens could be a key addition to portfolios to hedge the risk of increased volatility.

• Impact: Heightened volatility could lead to sell-offs in higher-risk Asian markets, particularly in China and Southeast Asia. Singapore can be relatively strong as a safe-haven. Other key safe havens such as bonds, JPY and CHF could also be considered.

• Markets on watch: MSCI Asia ex-Japan Index, China’s CSI 300 Index, and Singapore's STI Index.

• Relevant ETFs: iShares MSCI Global Min Vol Factor ETF (ACWV), iShares MSCI All Country Asia ex-Japan ETF (AAXJ), iShares MSCI Emerging Markets ETF (EEM), Vanguard FTSE Asia ex-Japan ETF (VPL).

Summary: Key investment implications

Diversification

Investors can consider diversifying into broader global markets to mitigate US-specific risks. Consider adding exposure to:

• Emerging markets (e.g., iShares MSCI Emerging Markets ETF – EEM).

• Developed international markets (e.g., iShares MSCI EAFE ETF – EFA).

Hedging strategies

If a weaker USD is anticipated, explore currency hedges or invest in non-USD sectors. Consider local currency ETFs or WisdomTree Bloomberg US Dollar Bullish Fund (USDU) to manage currency risks.

Investors can hedge their US equity exposure using inverse ETFs like ProShares Short S&P500 ETF (SH), or through currency hedges with instruments like WisdomTree US Quality Dividend Growth Fund (DGRW), which can provide some insulation against dollar depreciation.

Gold and the Japanese yen (JPY) are traditional safe-haven assets that can provide effective hedges during times of heightened uncertainty, like the US elections.

Long-term focus

Stay committed to long-term trends that transcend election outcomes, such as AI, renewable energy, infrastructure and others.

Volatility creates opportunities

Election-induced volatility can present opportunities to acquire quality assets at lower valuations.

Read the original analysis: US votes, Asia reacts: Investment strategies for a Trump-Harris showdown