LGT strategist Mikio Kumada in an interview with finews.asia analyses the influence of Donald Trump's announcements on the countries in Asia and gives a prediction about how the Chinese government will respond.
Mister Kumada, incoming U.S. President Donald Trump frequently is making headlines with his announcements. How do you see his approach in respect to China?
This confrontation to a certain degree is necessary – not only from a purely U.S. point of view. Many countries in the Asian-Pacific region don't only see the economic opportunities arising from emergence of China, but also the risk to the their security and even territorial integrity. They are looking for a balance of power, which currently only the U.S. is able to provide.
China's rulers don't harbor any illusions about this as far as I can see, and they certainly are prepared for a stiffer wind. I believe that counterproductive, emotional reactions from China are rather unlikely.
«I don't expect a cold war in Asia either, rather I see a cool peace»
The times, when China was welcomed globally as an emerging but still relatively small economic power, receiving access to markets without granting equal rights in return, surely are over. China has become too powerful for this. It also has stopped growing as strongly. The promises of growth in China alone won't suffice to earn the goodwill of other countries.
Is there a danger of conflict between the U.S. and the Asian world?
No. And I don't expect a cold war in Asia either, rather I see a cool peace. In the end, the problems between countries will be solved pragmatically.
«I personally believe that Washington and Beijing will find a new modus vivendi»
Incidentally, Asia isn't synonymous with China and the U.S. still has more allies and friends in the region than the People's Republic. The countries, with very diverse historic backgrounds, cultures and political systems – from India to Vietnam, Mongolia to Japan – quite easily are able to live with Trump's tougher ways with China.
But, as I said: I personally believe that Washington and Beijing will find a new modus vivendi, a way that will take into account the competing status of power of the two countries.
In what ways is Donald Trump good news, respectively bad news, for Asia?
The protectionist posturing and the announcement of a pull-back from TPP, the Trans-Pacific Partnership remain risks that need to closely watched. The threats of imposing punitive tariffs so far are words only. It remains to be seen whether TPP is actually going to die.
The market reaction also has to be kept in perspective. The equity indices in the emerging markets have been hurt by the victory of Trump – having however been among the outperformers in 2016.
«We shouldn't read too much into the short-term swings and the political upheaval»
The markets in Taiwan and South Korea for instance in 2016 have had gains of 19 and 9 percent respectively. The developed markets in Apac (Japan, Australia, Singapore) have even reacted very positively to Trump's election.
And what is your conclusion from this?
We shouldn't read too much into the short-term swings and the political upheaval. In the medium term, potentially higher global and American growth rates, a strong dollar, trading and investment flows within Asia and the indo-pacific region, may actually compensate for a possible increase in protectionism by the U.S.
«China's stock market is more unpredictable than other markets – even without the Trump-effect»
Fundamentally, more global growth and less deflation is good for Asia. It will thus all depend on how much of his protectionist rhetoric the incoming U.S. president will turn into real policies.
The Chinese stock market had a massive decline a year ago. How do you see the situation today?
China's stock market in principal is more volatile and unpredictable than other markets – even without the Trump-effect. The macroeconomic outlook and market expectations in China are more positive – at least more positive than they used to be.
It remains questionable whether China will remain an outperformer in coming months too. We are more neutral in this respect and prefer to wait and see. Currently, the industrialized economies in the region are enjoying the tailwind – that's Japan and Australia, even if for different reasons.
Mikio Kumada is Executive Director and Global Strategist at LGT Capital Partners. He looks at economic topics from an international perspective. The son of Japanese-Greek parents grew up in Russia, Germany and Japan, studied in Vienna and worked in London and Athens. In 2002, he joined LGT and moved to Asia in 2008.
If he is not analyzing or commenting on the financial markets, he is exploring the many subtropical trails in and around Hong Kong. You can also follow him on Twitter at @Mikio_Kumada.
