The threat of a new era of protectionism raised in US President Donald Trump's inauguration address last Friday left financial markets floundering yesterday. The immediate reaction was a fall in the greenback against the Singapore dollar and other Asian currencies.
There was a 0.7 per cent rise of the Singdollar against the greenback, while the Chinese yuan rose 0.3 per cent. Safe-haven investments rose as well: The Japanese yen climbed 1.3 per cent, while gold added as much as 1.3 per cent to US$1,215.97 an ounce.
HSBC Asian forex strategist Alastair Pinder sees more volatility ahead for Asian currencies if Mr Trump's rhetoric towards China escalates further.
Apart from Japan, which fell 1.29 per cent, Asian markets were mostly flat to slightly higher yesterday as investors await details of his fiscal stimulus plan and policies.
The Straits Times Index rose 0.48 per cent, with similar rises in Hong Kong, Shanghai, Taiwan and Malaysia. "Markets are unsure how to react. Tax and regulatory reforms promise a bump-up in global growth. Yet a slide into tit-for-tat protectionism spells disaster for nascent global demand recovery," Mizuho Bank analyst Chang Wei Liang noted.
The markets are also trying to get a grip on how much of Mr Trump's rhetoric will become policy, and how his administration will engage trade partners, given the protectionist stance in his speech. He has pledged to buy American and hire American.
"A trade war with other countries is what we all fear. He has been talking about reviewing the Nafta (North American Free Trade Agreement) with Canada and Mexico," CIMB economist Song Seng Wun said.
Bank of Singapore chief economist Richard Jerram noted that several of his Cabinet appointees have a history of blaming China for unfair trade and US manufacturing job losses. He added: "The whole region is affected, as many Asian economies export to China as part of regional production chains that end up as exports to the US."
Mr Song said Singapore is caught between a rock and a hard place. "The US is our biggest investor, and we are vulnerable to global trade. We have seen export numbers, factory activity picking up towards last year because of improved external demand for tech and chemical products," he said.
"US protectionism may derail the recovery of 2017 and spill over into 2018, if there is any disruption to global trade."
He added: "However, it is too early to revise the forecast. This year, we were looking at 2 per cent to 2.5 per cent growth. US policy changes may not be immediate; perhaps any impact will be felt in the second half of the year, into 2018."
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