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Stocks

Trump effect buffets Asia300 stocks one month after election

South, Southeast Asia hit hardest while Singapore flourishes

HONG KONG/SINGAPORE -- The Nikkei Asia300 stock index slumped in the month after Donald Trump's election as U.S. president as investors fled emerging markets, though a look at individual countries shows the struggle is not universal.

Emerging-market pain

The Nikkei Asia300 Index, which tracks 324 companies selected by Nikkei based on such factors as market capitalization and growth potential, closed at 1,049.68 Wednesday. The index is down 2.4% from its Nov. 8 closing value of 1,075.69, just before the election results came in. It bottomed out Nov. 21 at 1,019.61 but remains top-heavy. The initial value of 1,000 is based on prices as of Dec. 1, 2015.

Benchmark indexes in Japan and the U.S. performed significantly better, with the Nikkei Stock Average and Dow Jones Industrial Average up 7.7% and 6.6%, respectively.

Individual indexes for the 11 countries and regions represented in the Asia300 list hint at regional differences. South Asian and Southeast Asian countries generally fared worst, dragging down the overall index. The Indonesian, Philippine, Malaysian, Indian and Vietnamese indexes all sank more than 5%, with Indonesia leading the way with a 9.4% plunge. Each of these countries faces financial, political or social instability, current-account and budget deficits or high inflation.

Global investor money flooded into high-risk, high-return Asian assets when interest rates were low worldwide. But Trump's pledges of fiscal expansion have sent U.S. Treasury yields soaring, making Asian markets look less attractive by comparison. Currencies, stocks and bonds have come under simultaneous downward pressure.

Some countries have been hit by specific Trump-related risks, such as concerns in the Philippines that fewer people will go to the U.S. to find work, leading to a drop in remittances. With Vietnam, the fear is that the Trans-Pacific Partnership regional free trade deal is dead in the water.

The financial scandal surrounding Prime Minister Najib Razak is proving Malaysia's Achilles' heel. "In India, sentiment has turned bearish because of the financial turmoil caused by the sudden demonetization of large-denomination bills by Prime Minister Narendra Modi's government," said Kengo Yoshida, a strategist at Mizuho Securities Asia.

Among the worst-performing individual stocks were state-owned Telekomunikasi Indonesia and Indian consumer goods company ITC, which sank 10% and 11%, respectively.

Developed-market patterns

The sole gainer among the individual indexes is Singapore, which fared better for a number of reasons. Yoshida cited a rise in financial stocks. The city-state's status as a financial hub means it has bank stocks with large market caps. Of the 22 Singaporean stocks in the Nikkei Asia300 Index, banks rank first, second and fourth on the weighting list. These stocks have surged across the board since the U.S. election, including DBS Group Holdings, which climbed 20%.

The yield on 10-year Singapore government bonds jumped from the 1.9% range before the election to the 2.4% range in early December. A similar mechanism is likely at work here as in developed markets: rising U.S. interest rates fuel speculation that interest margins will widen, driving bank stocks higher.

"Singapore is the most advanced country in Southeast Asia, so even when investor money is fleeing surrounding emerging countries, there's a contrasting sense that it's safe to buy here," an economist at Sumitomo Mitsui Banking Corp.'s Singapore branch said. A crude oil rally has also bolstered major oil rig companies.

The indexes for East Asian countries and regions such as South Korea, China and Taiwan have edged down slightly over the last month. The broad trend of capital flight from Asia was likely roughly balanced out by buying of stocks expected to benefit from a global economic recovery and higher interest rates.

Lumping all of Asia under a single label conceals a wide range of conditions and industrial structures in individual markets. Investors will need to weigh their decisions carefully, keeping political and other risks in mind.

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