Colliers Flash
ASIA | PROPERTY
9 November 2016
Challenges for Asia
after Trump's win
Trump's victory surprises global
financial markets
At first sight Donald Trump's unexpected victory in the
US presidential election raises many challenges for Asia,
including a possible near-term hit to US and global
confidence and growth and radical trade policies
targeting China and other countries. We have already
seen some of the implications today in falling Asian stock
markets and a strengthening of traditional safe haven
assets such as gold and the Japanese yen.
It is possible that the turbulence in financial markets
today will prove very short-term; right now there are few
grounds to believe that politically-driven tumult in the
markets after the election will lead to any long-run
declines or recession in the US.
Andrew Haskins
Executive Director | Research | Asia
Donald Trump's US presidential victory raises
challenges for Asia, including a possible near-term
hit to confidence and growth and new tariffs on
imports. Tumult in financial markets may prove very
short-term. However, if US growth suffers under Mr
Trump, US interest rates may only rise gradually and
the dollar may weaken. This outcome would support
Hong Kong property assets, since it would mean
that negative real interest rates persist. However,
dollar weakness would hurt Asian exporting nations,
notably Japan where property investment volumes
have already been affected by the dull economy and
strength of the yen. Direct implications for the
property markets within developing Asian countries
such as China and India are more limited. In the long
run, we expect the combination of Trump's victory
and Brexit to remind global investors and property
occupiers of the potential for shocks in developed
as well as emerging countries, and so mitigate
political and economic concerns about Asia. This
should lead to higher demand for Asian financial
assets including property over time.
At first sight, Trump's policies will
hold down Asian growth
However, now that Mr Trump has won, we must start to
examine his policies. Mr Trump has many radical policy
proposals, but it is unclear which of them he will actively
promote first. Domestically, Mr Trump has suggested
that he will press for large-scale fiscal austerity and tax
reductions while, regarding foreign policy, he has
suggested that he will press for tariffs of up to 45% to be
imposed on imports from China and other countries.
In office, Mr Trump may prove less radical than his policy
proposals suggest. That said, elections for 34 of 100
seats in the Senate and all 435 seats in the House of
Representatives were held on the same day as the
presidential election. The outcome has been very good
for the Republican Party, which has regained control of
the Senate and retained control of the House of
Representatives. If Mr Trump does face opposition to his
policies, it will have to come from within his own party
Certain respected forecasting houses believe that Mr
Trump's policies will have a contractionary effect on US
growth. In its "moderate Trump" scenario, Oxford
Economics posits tax cuts of USD1.0 trillion, spending
cuts of USD750bn and tariffs against China of 15%. This
outcome would have a limited negative impact on US
growth and marginal effect globally. In its "adverse
Trump" scenario, Oxford Economics posits tax cuts of
We have been assuming that the US Federal Reserve
will raise interest rates again this December, as it has
already signalled it plans to do. Thereafter it will push up
US interest rates steadily over the next few years.
However, if US growth does suffer under Mr Trump, then
the Federal Reserve may only raise interest rates very
gradually over the next few years, and possibly barely
raise them at all.
This prospect has positive implications for property
assets in Hong Kong, because Hong Kong interest rates
are effectively tied to US rates as a result of the
territory's currency peg. Hong Kong has enjoyed
negative real (i.e. inflation-adjusted) interest rates since
late 2009, and as a result has enjoyed what we would
argue are the loosest monetary conditions in Asia. This
prolonged period of easy money has coincided with an
increase in residential property prices of roughly 200%.
On the assumption that US interest rates only increase
gradually and that inflation in Hong Kong stays constant,
we do not expect Hong Kong to return to positive real
interest rates before early 2018, and possibly H2
2018.This outcome should support capital values across
most segments of the Hong Kong property market,
although residential prices will remain vulnerable to
further tightening measures similar to the harsh stamp
duty increases announced by the government last week.
USD weakness would hurt Japan
and other Asian exporting nations
If US economic growth suffers and US interest rates
increase more slowly than we have assumed up to now,
the US dollar may also start to weaken after many years
of strength. This scenario would be negative for Asian
exporting countries, notably Japan where the domestic
currency is already very strong (see Fig.1), but also
China, South Korea and Taiwan. This is because a
weaker dollar would reduce the competitiveness of their
exports, compounding the impact of possible weaker US
demand and new tariff barriers.
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Slow US interest rate rises would
support Hong Kong property
Figure 1: USD dollar vs JPY (last seven years)
JPY
USD1.0 trillion, front-loaded spending cuts of USD1.0
trillion and tariffs against China of 45%, with additional
tariffs on South Korea and India. This outcome would
have a significant negative impact on US growth and
materially reduce growth prospects in Asia.
Source: Bloomberg
We should add that the weakness of the domestic
economy and the strength of the Japanese yen have
already taken their toll on investment volumes in the
Japanese property market. According to Real Capital
Analytics (RCA), over the first nine months of 2016 total
investment transactions for income-earning properties in
Tokyo fell by 34% y-on-y to USD13.0 billion; this was the
second largest decline among major global cities after
London. If the yen continues to strengthen, foreign
investors may increasingly find themselves priced out of
Japanese property markets.
Direct implications for Asian
emerging countries are limited
Direct medium-term implications of Mr Trump's victory
for the property markets of developing Asian economies
are more limited. China and India are experiencing
strong secular growth which is unlikely to slow sharply
for the next few years. Investors and large multinational
occupiers should continue to be attracted to important
commercial property markets like Shanghai regardless of
who is US president. Meanwhile, demand and supply in
the Chinese and Indian residential markets are driven
largely by domestic factors such as urbanisation, wealth
levels, interest rates, lending policies and real estate
regulation which have little to do with the US.
Colliers Flash | 9 November 2016 | ASIA | PROPERTY | Colliers International
Trump and Brexit surprises should
lower concern about Asia over time
Perhaps the most important implication of Mr Trump’s
victory for Asia lies in the long term. In combination with
this year’s unexpected vote in the UK for Brexit, i.e.
departure from the European Union, the success of an
anti-Establishment candidate in the US should remind
global investors and property occupiers of the potential
for shocks in developed as well as emerging countries.
Since the Global Financial Crisis, US financial assets
have been in high demand and the US dollar has been
strong. This has been reflected in heavy capital outflows
from Asian real estate and stagnating capital inflows
over the past eight years. Despite possible near-term
volatility in emerging markets, we believe that the twin
developed market shocks this year of 2016 will mitigate
long-standing political and economic concerns about
Asia, and lead to higher demand for Asian financial
assets including property over time.
For more information:
Andrew Haskins
Executive Director | Research
& Advisory, Asia
+852 2822 0511
[email protected]
Copyright © 2016 Colliers International.
The information contained herein has been obtained from
sources deemed reliable. While every reasonable effort has
been made to ensure its accuracy, we cannot guarantee it. No
responsibility is assumed for any inaccuracies. Readers are
encouraged to consult their professional advisors prior to
acting on any of the material contained in this report.
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Colliers Flash | 9 November 2016 | ASIA | PROPERTY | Colliers International