Asian Shares Shaky, EM Under Pressure

Asian shares were on the defensive on Monday, undermined by fears that the strength in the US dollar and rising US bond yields since Donald Trump’s election to president could accelerate fund outflows from the region back to US markets.

Asian markets were steady to slightly lower, with Hong Kong’s Hang Seng flat, Australian shares down 0.2% and South Korea’s Kospi falling 0.3%, Reuters reported.

But Japan’s yen-sensitive Nikkei bucked the trend, rising 0.8% to hit a 10 1/2-month high, thanks to the weaker yen. European shares were expected to gain, with spread-betters seeing a rise of 0.2% in Germany’s DAX and Britain’s FTSE.

Trump’s unexpected election victory has led to a major repricing of assets, with investors rushing to buy US stocks and the dollar, while dumping bonds and emerging market assets.

Trump’s plan to expand fiscal spending, including more infrastructure spending, could be a game changer for markets that have long taken a policy mix of fiscal discipline and loose monetary policy for granted.

Under Trump’s reflationary policies, the Federal Reserve might have to raise interest rates faster than expected to curtail inflation, making US-dollar based assets more attractive at the expense of emerging nations.

“The markets driven by Trump may be just about to have run their course for now,” said Toru Ohara, chief investment officer at Okasan Asset Management.

Heightened uncertainty prompted investors to demand higher premiums for holding long-term US debt, with the 10-year US Treasuries yield accelerating to 2.364% by last week from around 1.86% before the elections.

It last stood at 2.340%, with a rise above its 2015 peak of 2.5% seen as having potential to spark a further sell-off as bond prices fall.

 Investors Sober

“Next week, we have events that would make investors more sober, such as the OPEC meeting and Italian referendum. By then this Trump-inspired market may have come to an end for now,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Higher US yields are helping the dollar continue its bull run. The greenback rose to as high as 111.19, its highest level since early June. It last stood at 111.08.

It has risen almost 10% from its low of 101.19 hit on November 9, when Trump’s victory was initially seen as stoking uncertainty and triggering a rush to safer assets such as the yen.

The euro traded $1.060, having hit a near one-year low of $1.056 on Friday.

The Australian dollar hit a 4-1/2-month low of $0.731 while the Chinese yuan fell to an 8 1/2-year low of 6.899 to the dollar.