Geopolitical risk, trade tariffs and pressure on Chinese assets, and interest rates remaining higher for longer—these are the key observations that economists, asset managers, and investors have made following the victory of Donald Trump in the US presidential elections, and the Republican Party’s new majority in the US Senate.
At the macro level, there are concerns that Trump’s expected tax cuts could slow interest rate cuts and reverse efforts to control inflation, says Gary Ng, an economist at Natixis.
“Interest rates may stay elevated for a while. That may affect US investors, in terms of funding costs [for investments] in Asia. I think that will be the most direct impact,” said Ng.
For private markets, there could be tax incentives for investment, which could potentially lead to increased capital inflows into private equity and venture capital, noted Aura Group managing director Calvin Ng in a note to clients. “However, the associated risks of economic nationalism and trade tensions could dampen returns, particularly for international ventures.”
Still, while private investments are less event-driven than public market transactions, any changes to short- or long-term macro trends bear tracking, says Cliff Chau, managing partner of ewpartners.
A Republican sweep will become a problem for Chinese assets.
A Republican sweep “will become a problem for Chinese assets,” as Trump is most likely to slam tariffs on Chinese goods going to the US, said Michael Strobaek, Global Chief Investment Officer and Chairman, Lombard Odier.
“What will also be amplified very strongly, I think, is the geopolitical or geo-strategic bet on technology. Technology cannot be understood today independently of what it is and what it does for consumers, it is a weapon in the geopolitical rise between China and the US,” said Strobaek.
Strobaek expects a Trump administration to put China under more pressure to continue fiscal stimulus. “China is being weighed down by that [a geopolitical standoff] and several [US] policies that have put material headwinds against Chinese assets, the real estate market, and the economy,” he said. “The Chinese government, [along] with the central bank, needs to continue the stimulus to move away from a situation where they potentially end up in years of contraction.”
“A Trump-led government is expected to increase tariffs, particularly targeting China and Mexico, with other countries in the Asia ex-Japan region also being scrutinised. Beyond the immediate effects of higher prices and supply chain adjustments, investors may also want to monitor potential currency impact, especially from a weaker renminbi,” said Craig Bell, Head, Multi Asset Portfolio Solutions at Eastspring Investments in an emailed note.
A Republican administration is expected to put climate policies on the backburner.
Notably, the Republican administration is expected to resume more fossil fuel extraction, while putting climate policies on the backburner, said EastSpring’s head of growth equities John Tsai. “Considering that Asia is a crucial supplier of green energy solutions, electric vehicles and solar panels, and the EV battery supply chain could face challenges.”
The market response was mixed immediately after the result. The US dollar is set for its biggest gains against major global currencies since 2020. In Asia, the Nikkei ended at a three-week high, the STI in Singapore and Shanghai Composite closed marginally higher than at opening, while the Hang Seng Index in Hong Kong closed about 2.2% down from the start of the day.
Ultimately, regardless of the election outcome, the US itself remains one of the most attractive markets for investors from outside the country, said Vishnu Amble of the single-family office Green Bear Group: “Capital is going to keep coming to the US. The returns, the best systems for value creation, entrepreneurship are here.”
Samy Chaar, Chief Economist and CIO Switzerland Lombard Odier added: “If the Republicans sweep both houses of Congress and the White House, we would expect a more high-octane US economy, with growth above potential and inflation above the Fed’s target. Rates are then likely to be higher than pre-election expectations. The race for the House of Representatives will determine whether campaign pledges can be fully implemented.”
