As investors try to predict the impact of Donald Trump's election as US President, Asian stock markets are trending downwards. The impetus has been the rise in US bond yields on expectations that the new government's policies will result in higher interest rates.
This assumption is driving money outflows from Indian and other Asian markets. FIIs have begun heavy selling in the Indian market, dumping shares worth over Rs. 2,000 crores. Most Asian currencies including the Indian rupee have fallen against the dollar.
The 100 day plan for the new US administration may follow the blueprint released by Trump during his campaign, which focused on ending illegal immigration, increasing domestic spending and withdrawing from international trade agreements. These are likely to impact Asia significantly if President Trump follows through on these promises - FIIs and investors in Asia expect that the immediate impact will be higher US interest rates and more domestic spending, as the new government tries to deliver quick results in the first year.
What is likely to happen: Big domestic spending in the US economy will result in higher outflows from India and Asia
President-Elect Trump has promised big domestic spending ($1 trillion over ten years) on infrastructure projects, as well as tax cuts - a 35% tax cut for middle class families - to boost jobs. Investors think this could boost US economic growth in the short term, and will also result in an interest rate hike, which will pull more money out of Asian markets.
What may happen: Anti-trade moves, and targeting China
Trump may be the most anti-trade President the US has had in decades: he has committed to exiting the free trade NAFTA agreement with Mexico and Canada, ending the offshoring of jobs by US companies, and also promises to term China a 'currency manipulator' and slap a 45% tariff on all Chinese goods being imported into the US. This puts US - China relations in a complicated position, and Trump's stance that all trade agreements are up for renegotiation makes the various deals Obama signed with Japan, India and other countries in an uncertain situation. Much of this will be unclear until Trump moves into the White House and makes his first announcements.
