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Asian stocks dance to Trump's tune

Drug and airline shares reel, but US expansion hopes buoy manufacturers

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Worries about potential pharmaceutical price cuts in the U.S. have slammed shares in Indian drugmakers.   © Reuters

TOKYO Remarks by U.S. President Donald Trump have shaped Asian stock markets in the two months since his unexpected election, with winners and losers emerging as investors try to get a handle on his policy plans.

POLITICAL PRESSURE In a news conference on Jan. 11, Trump denounced the pharmaceutical industry for "getting away with murder" and indicated he would push for lower drug prices. Because Indian companies control roughly 40% of the U.S. generic-drug market, the comments raised concerns that price reductions could cut into profits. Drugmaker Dr. Reddy's Laboratories slumped more than 3% at one point the next day, with peers such as Lupin sinking as well.

This is just one example from a two-month trend. The Nikkei Asia300 Index, which tracks about 300 leading Asian businesses, slid 0.1% between the Nov. 8 U.S. election and Jan. 13, even as the Dow Jones Industrial Average and the Nikkei Stock Average gained around 10%.

This underperformance owes mainly to fears of capital flight from emerging Asian markets in the wake of the U.S. interest rate hike. But the outlook for American policy under the Trump administration also played a significant role.

Taiwan's Eclat Textile shed 4% over the same period and plunged 10% on Nov. 9, the day that news of Trump's victory emerged. The apparel maker had been expected to benefit from the Trans-Pacific Partnership by moving production facilities to Vietnam. But the win by Trump, whose vow to withdraw from the TPP has left the trade pact dead in the water, spurred investors to sell.

Chinese airlines face the risk that friction between Washington and Beijing over Taiwan will dent passenger traffic on Taiwanese and other routes. Such concerns have weighed on the shares of Spring Airlines and China Southern Airlines. The dollar's appreciation since the election also has fueled worries about higher foreign currency-denominated costs, such as aircraft purchases, driving Thai Airways International and Korean Air Lines down more than 10% between Nov. 8 and Jan 13.

U.S. PLANS PAY OFF Other stocks made major gains over the same period, benefiting from investor hopes for Trump's promise to "make America great again." One such winner is Lotte Chemical, which surged 29%. The South Korean company plans to bring online in 2018 a jointly run plant in the U.S. state of Louisiana that will produce ethylene from shale gas. The ethylene market is strong, and having a U.S. production base is seen working in Lotte Chemical's favor.

Taiwan's Formosa Plastics gained 5%, outperforming the Taiwan Stock Exchange Weighted Index's 2% advance. The company is considering expanding production facilities in the U.S., Chairman Jason Lin said at an earnings briefing on Jan. 9. He expressed hope that the U.S. will become the best investment destination under Trump.

Expectations of higher U.S. infrastructure spending also have bolstered resource companies. Baoshan Iron & Steel rallied on hopes of a surge in infrastructure demand, as well as steel prices bottoming out.

A return of manufacturing jobs to the U.S. would likely fuel investment in productivity improvements. Such a development would be good news for Advantech, a Taiwanese producer of industrial automation equipment, which rose 8%.

The fortunes of two Taiwanese iPhone assemblers have diverged since the election. Hon Hai Precision Industry (also known as Foxconn Technology Group), which is considering starting production in the U.S., gained 1.4% through Jan. 13, while peer Pegatron, which has been less keen on the idea, tumbled 12%. Pegatron Chairman Tung Tzu-hsien walked back previous comments on the matter on Jan. 15, saying the company is prepared to at least triple its U.S. capacity if necessary.

Investors pulled roughly $7.9 billion out of funds investing in non-Japanese Asian stocks between the presidential election and Jan. 13, according to EPFR Global, which tracks global mutual fund flows.

"Trump's hard line against China is cause for concern," said Hirokazu Kabeya, chief global strategist at Daiwa Securities. "It could have a negative impact on Asian countries."

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