Obama s win and implications for Asia

As we go to print in early afternoon Asian trading, the election outcome has not yet been declared but all signs are pointing to a near certain Obama win. Asian markets took news of an Obama election win as a positive, even though the perception was that Romney and the Republican Party would be better for equities generally. Markets feel comfortable for the time being for the following reasons:

• Obama’s style is known, he can transition into his second term almost immediately with little disruption.
• An uncertain or too close to call outcome – as some had speculated in the days before the election – would have weighed on markets and cause angst amongst traders.
• Obama is unlikely to take any drastic action towards Fed Chairman Ben Bernanke who Romney said he would seek to remove.

The last point is more important to risk assets – commodities in particular. Bernanke’s money printing and third round of quantitative easing had caused angst among many conservatives who cautioned against the consequence. Any move against Bernanke would have caused metals prices – which have benefited hugely since the initial round of quantitative easing – to fall away quickly until the new chairman was selected and his approach to markets articulated. Gold, copper, silver and oil all booked marginal gains on the news of an Obama win. Risk currencies rallied slightly, while the dollar yen looks set to test the 80 mark over the next few hours.

China: Despite the tough talk around China’s currency and competitiveness in the United States manufacturing belt, Obama is unlikely to unsettle any existing trade relationships. The official tone from the administration will remain that China must speed up its market reforms and let its currency reflect a trade market price. The Chinese are likely to continue gradually moving restrictions in 2013, knowing very well the inflationary consequences of having their currency set too low.

Japan: The Japanese would love to see their currency value fall but they know very well that for as long as Ben Bernanke’s printing presses continue churning, the job will be very difficult. The Bank of Japan is likely to continue sounding alarm over the currency situation which is hurting domestic exports. The government will beat its chest, but it knows very well that currency intervention is becoming very expensive and ineffective.

Australia: As a large export economy and one which is leveraged to commodity prices, Australia’s interests are increasing becoming tied to Asia. Obama’s win is likely to see the domestic diplomatic arrangement unchanged, money printing by Ben Bernanke will provide good momentum for Australia export prices but the domestic economy will also feel the pain of an appreciating currency and much like its northern Asian neighbours, the Reserve Bank of Australia knows it cannot fight the Fed.   

Latina America to compete with Asia

The United States is home to more than 50 million ethnic Hispanics and Latinos. The biggest threat to the Asian region in Obama’s second term is the United State’s shift towards Latin American manufacturing – something which emerged prominently in Romney’s campaign an economic policy which has demographic changes in its favour.

The democrats know that jobs are important and losing competitiveness to China will continue to cost votes for as long as the US economy remains in rebuilding stages. By promoting further ties to Latin America, which is also become cost competitive compared to Asia as inflation takes hold, there will be a political opportunity to show Obama has not bowed down to China completely.

China knows its coastal cities will eventually lose their competitiveness to places like Mexico, Columbia and Argentina and so is taking great measures to ensure the shift of migrant workers back inland is matched by opportunities in second and third tier cities. This for us is a key theme in 2013 – how the East adjusts to the West’s political strains. As China looks to shift its development and wealth more equally inland, there will be a need for all the bulk commodities and energy sources that resource rich countries like Australia, Indonesia and Central Asia provide – hence the market opportunities.