Asian markets rally on double shot of positive news

The much-awaited trade deal between the United States and China and the British election results combined to lift the MSCI AC Asia-Pacific Index by 1.5 per cent.
The much-awaited trade deal between the United States and China and the British election results combined to lift the MSCI AC Asia-Pacific Index by 1.5 per cent.PHOTO: AP

The double shot of positive news on the world's two most critical trade issues generated exuberance in markets across Asia yesterday.

The much-awaited trade deal between the United States and China and the British election results that raised hopes of an orderly Brexit combined to lift the MSCI AC Asia-Pacific Index by 1.5 per cent.

Japan's Topix index and Hong Kong's Hang Seng Index led regional gains. Singapore's Straits Times Index (STI) closed at its highest level in more than two weeks.

The Asian rally followed gains in US stocks overnight on reports that President Donald Trump had signed off on a "phase one" trade deal with China.

The deal would avert a new round of tariffs on China set for tomorrow and cut levies imposed earlier on Chinese goods bound for the US.

The Dow Jones Industrial Average jumped more than 200 points while the S&P 500 closed 0.9 per cent higher on Thursday. The Nasdaq Composite ended the day up 0.7 per cent. All three touched record highs.

More clarity on global trade and investment flows came as results of Thursday's British election showed a landslide victory for Prime Minister Boris Johnson, giving him a mandate to leave the European Union next month. After that, Britain will start negotiating a post-Brexit trade agreement with the EU, and a separate deal with the US.

The FTSE 250 Index jumped as much as 5.4 per cent in early trade yesterday, hitting a record high. The FTSE 100 underperformed as shares of listed companies that export their products fell, with the British pound set for its biggest gain against the US dollar in almost three years.

Analysts said the considerable majority for Mr Johnson will help end the three-year political stand-off on Brexit, unlock pent-up investment flows and help the pound and the euro in the short run.

 
 

But for the world economy and financial markets, the US-China trade deal would be far more important.

"After months of back and forth and scaling back of the scope of trade negotiations, a limited US-China trade deal arguably reduces global market uncertainty for at least a few months," said Mr Taimur Baig, chief economist at DBS Group Research.

The "phase one" trade agreement is set to be officially announced in Washington, Bloomberg News reported. Mr Trump also sounded quite optimistic in his tweet on Thursday night: "Getting VERY close to a BIG Deal with China. They want it, and so do we!"

It was in October that Mr Trump announced that the world's two biggest economies had agreed to terms for a "phase one" deal. But negotiations dragged on even as Mr Trump repeatedly declared progress towards ending the trade war, which has weighed on the global economy.

Mr Baig of DBS said reported details show that under the "phase one" agreement, China will import US$50 billion (S$68 billion) worth of farm goods annually, up from US$24 billion in 2017, tighten intellectual property protection and open up its financial services market to US companies.

Meanwhile, the US will refrain from imposing new tariffs on Chinese goods and partially roll back existing tariffs. Tariffs can be snapped back if China does not live up to its obligations in the deal, he said.

"Thornier issues like subsidies for state enterprises and technology transfer will be part of a subsequent deal, which will take at least another year or longer," said Mr Baig.

 
 

Nomura Holdings economist Rob Subbaraman said: "If the US is indeed going to reduce existing tariffs, then this 'phase one' is likely to be more than just a mini deal."

In terms of the economic impact, Mr Subbaraman said such an agreement will be more positive for China's economy than the US'.

"But the largest positive impacts will be on the smaller and more open Asian economies of South Korea, Taiwan and Singapore," he added.

The benchmark STI rose 0.6 per cent, or 19.38 points, to 3,214.05, with Venture Corp posting the biggest gain in the index, up 3.8 per cent. All three banking stocks - DBS, United Overseas Bank and OCBC Bank - advanced.

Analysts expect Asian exporters to benefit the most as trade tensions between the world's two biggest economies ease.

With nearly a 5 per cent increase this year, the Singapore stock market is poised for the best year since 2017.

The Singapore dollar also strengthened as the US-China deal and improved prospects for an orderly Brexit reduce the possibility of the Monetary Authority of Singapore easing currency policy next year.

The Singapore dollar touched a five-month high at $1.3514 to the US dollar, rising for a 10th straight session in the longest winning streak since 2005.

Elsewhere, Chinese shares rose and onshore yuan rallied the most in a year. South Korea's won surged the most since November last year. The ringgit advanced to a one-month high, while the rupiah climbed the most since October.

 
A version of this article appeared in the print edition of The Straits Times on December 14, 2019, with the headline 'Asian markets rally on double shot of positive news'. Subscribe