Remarks by U.S. President-elect 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.
In a news conference Wednesday, Trump denounced the pharmaceutical industry for "getting away with murder" and indicated he would push for lower drug prices. Since Indian companies hold roughly 40% of the American 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 around 300 leading Asian businesses, slid 0.1% between the U.S. election Nov. 8 and Friday, 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 incoming 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 Friday.
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 strong. 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 actively considering expanding production facilities in the U.S., Chairman Jason Lin said at an earnings briefing 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, which is considering starting production in the U.S., gained 1.4% through Friday, 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 Sunday, 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 last week, 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."
Share price reactions to Trump policy (in percent)
[Higher dollar and oil price weigh on earnings]
Korean Air Lines (-14.8)
Thai Airways International (-13.9)
Spring Airlines (-13.4)
China Southern Airlines (-2.9)
[Concerns over lower U.S. drug prices]
Dr. Reddy's Laboratories (-4.2)
[Concerns over tighter visa policy for foreign engineers]
Tata Consultancy Services (-1.4)
[Concerns over TPP, other trade deals]
Eclat Textile (-4.3)
[Expectations of infrastructure and automation investment]
Lotte Chemical (28.6)
Baoshan Iron & Steel (20.6)
Delta Electronics (Thailand) (8.6)
Formosa Plastics (5.4)
[Expectations of improved margins with U.S. interest rate hike]
DBS Group Holdings (19.4)
United Overseas Bank (13.4)
[Expectations of higher U.S. defense spending]
Singapore Technologies Engineering (6.7)
Note: Comparison between Nov. 8 and Jan. 13