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Obama's win and implications for Asia

Peter Esho  |  08 Nov 2012Text size  Decrease  Increase  |  

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Peter Esho is the chief market analyst at City Index.

 

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.

In Australia, the early afternoon trading in the market yesterday capped a solid close, breaking through the 4500 level on the ASX 200.

Markets feel comfortable for the time being for the following reasons:

1. Obama's style is known. He can transition into his second term almost immediately with little disruption.

2. An uncertain or too-close-to-call outcome - as some had speculated in the days before the election - would have weighed on markets and caused angst among traders.

3. Obama is unlikely to take any drastic action towards Federal Reserve chairman Ben Bernanke, who Romney had 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 had cautioned against the consequences.

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 US 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 alarms over the currency situation, which is hurting domestic exports. The government will beat its chest, but it knows that currency intervention is becoming very expensive and ineffective.