Asian issuers wait for Trump policies as DCM, ECM hit
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Asia

Asian issuers wait for Trump policies as DCM, ECM hit

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Capital markets participants in Asia were digesting the news of Donald Trump’s victory in the US presidential election as markets in the region went into freefall. While bankers and investors admit that no market will be immune to the news, they are expecting a quick rebound in ECM, while debt issuers will take longer to come to terms with the result.

Trump, the outspoken Republican presidential candidate, declared himself the president elect on Wednesday afternoon Hong Kong time after a feverish period of vote counting in the US.

GlobalCapital described the winner as pro growth but anti-trade in a piece published before the results were called on Tuesday in the US. 

The immediate impact on the debt and equities markets in Asia was evident. Asian indices retreated, with Hong Kong's Hang Seng shedding 2.16% to close to 22,415. In South Korea, the Kospi finished down 2.25% to 1,958 and Japan’s Nikkei fell sharply, closing down 919.84 or 5.36% to 16.251.54.

The reaction among bankers in the region was mixed. For some, the end of the election uncertainty, combined with ambiguity around Trump’s economic policies, could benefit Asia, which would look relatively stable and predictable.

“It’s positive for Asia because people who were looking to invest in the US might think twice because of the US presidency and what it means for the developed world,” said a head of Asian syndicate at a European lender.

“For example, right after Brexit, Bank of China became the first big issuer and did its $3bn green bond and opened up the market. I won’t be surprised if a big Chinese name launches a deal on Monday. It does not even have to be a Chinese name, but just a strong credit will help. They may have to price 3bp or so above their curve but investors will be breaking down the door to get in.”

DCM issuers on hold

But understandably, other DCM bankers were less sure about the market and preferred to wait and see how investor sentiment plays out over the next few weeks. 

DCM bankers told GlobalCapital Asia that issuers that were hoping for reduced pricing on their G3 bonds may now have to bide their time. On Wednesday, the dollar strengthened against most Asia Pacific currencies, while the yields on 10 year US Treasuries initially fell by around 10bp, before giving back much of the declines. They were trading at 1.92% at 6.20pm Hong Kong time. 

On average, spreads on dollar bonds in the region widened by 5bp-10bp on Wednesday, said bankers.  

“We expect the market to be very volatile,” said a Singapore based DCM banker. ”It will impact the pipeline for the rest of the year, some more than the others. Safe names may be OK but some issuers will step back. The market needs stability before new issuance starts coming in. We also need to see how the US session performs tonight.”

A head of Asia Pacific debt syndicate talked about a market in paralysis and described the Trump win as “Brexit but on a grander scale”. What was expected to be a busy Thursday for primary deals had Clinton won, is now likely to be quiet as people take stock of the market. 

“There is a backlog of bond issuances that will need to come out,” he said. He added that it would take a few big guns to re-open the market and noted that China was remarkably relaxed.

“Right now, everyone is taking this day by day. No one is benefiting in the short term."

ECM, loans wait for clarity

ECM bankers, meanwhile, expect a quick recovery in Asia, much like what happened in the aftermath of Brexit in June. They also pointed out that markets had been pricing in a Trump win for some time, limiting the short-term impact, but they still expressed concern over the mid-term outlook. 

“These knee-jerk reactions are just temporary. People are concerned about what is going to happen later, and they are looking for guidance,” said an ECM banker in Hong Kong. “Trump winning is going to have a direct impact on the market, and nothing is immune from this.”

Those working in syndicated loans, were characteristically unperturbed. The US and Asian loan markets are not heavily inter-meshed, said a head of origination at a European lender, meaning the impact of the Trump victory on deal flow will be minimal.

But more importantly, the expectation is now that the US Federal Reserve will hold off on interest rate hikes in December. So banks will continue to remain very liquid and there are no real downside risks to them, said loans bankers.

“The immediate impact will be on the Fed,” said Dominic Rossi, global chief investment officer, equities, at Fidelity International in a note on Wednesday.

“The probability of a hike in interest rates in December, followed by two further hikes 2017, has fallen sharply. The dollar which has been trending higher in anticipation, has consequently reversed. Both were threats to the bull market, and these have now been postponed. Monetary policy will remain accommodative.”

For loans bankers working at Asian branches of US banks, however, there will be a period of uncertainty to contend with as they await direction from the top.

“I know there is all this talk about Asia being siloed but really, it remains to be seen how we will be impacted,” said a southeast Asia loans banker at one of the bulge brackets.

The potential wariness among bond investors to high yield and lesser known Chinese credits could potentially boost loan market volumes as they may turn to that as a debt avenue instead, said the banker at the European lender.

“With Brexit, nothing happened to us,” he said. “We lost connectivity with the US as a loan market a long time ago. This is news worthy but not a game changer in any way. May be Chinese [borrowers] that can’t go to the bond market would find their way to loans. So this could even be good in the short term. 

"US fundamentals are way different to ours; they are data driven and take it week by week, month by month. We in Asia are growth, consumption and domestic policy led.”

The China outbound M&A pipeline, which had been a bright spot for loans bankers this year, may take a hit, said a second loans banker. Trump is known for his protectionist views, especially when it comes to US-China relations. 

“Chinese [companies] won’t be able to buy assets in the US or hope for assets there in the next 12 months," he reckons. 

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