US Presidential Election

Treasury Research & Strategy

Global Treasury

1

Trump’s victory and market reactions:

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3

A recap on Trump and what he may do Donald Trump

Taxes

• Reiterated his support for tax cuts, “…my tax cut is the biggest since Ronald Reagan. It’s going to be a beautiful thing to watch.”

• Defend his tax proposal by claiming that “they’re (companies), believe it or not, leaving (U.S) because taxes are too high”.

Tax

Pro

po

sals

Income Tax Cut taxes for all income brackets (12%, 25% and 33%)

Investment Tax Eliminate net investment income surtax

Corporate Tax Cut tax from 35% to 15%

Estate Tax Eliminate estate tax

Free Trade “It’s not “free trade” with China, its “stupid trade”

Trad

e P

rop

osa

ls

TPP Opposes the TPP trade deal, likening it to “rape of our country”.

NAFTA “Worst trade deal in history”

Tariffs 35% tariff on Mexican goods, 45% tariff on Chinese goods

Immigration Wants to build a wall on Mexican-US border. Proposed mass deportation for illegal

immigrants

Soci

al/I

mm

igra

tio

n

Abortion Proposed "punishment" for abortion except for legitimate reasons

Healthcare “Obamacare is a disaster”, wants to abolish it.

Guns Armed people with guns could have intervened and save lives

4

Republicans in Control

Source: AP, Google

• Donald J. Trump has won the 58th

U.S. Presidential Election as he

claimed swing states like Florida,

Ohio and Pennsylvania.

• In his victory speech, he promised

to be a “president for all

Americans” and has sought for

both Democrats and Republicans

to “come together as one united

people”.

• He added that “We (U.S.) will get

along with all nations willing to get

along with us.”, clarifying that the

country will “seek common ground,

partnership not conflict”.

• He also congratulated Secretary

Clinton for her years of hard work,

mentioning that Clinton was owed

a “deep debt of gratitude”.

5

A show of market (in)confidence in Trump?

• According to Moody’s Analytics, Trump’s

economic policies is seen to fare worse

when compared to Clinton’s, across US key

indicators including GDP, Federal debt,

Employment.

• Spill-over risks including slower foreign

investment flows, incurring of more debt and

overall risk of an economic slowdown in the

US becomes apparent.

Source: Bloomberg, Moody’s Analytics, Forbes

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US$

tri

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Debt is always a touchy subject: US National Debt tops US$19 trillion

6

S&P performance across sectors

Source: Strategas Research Partners using S&P 500 Data

Election Year Year + 1 Year + 2 Year + 3

Financials 8.80% 15.70% 4.50% 8.10%

Utilities 6.20% 3.70% 0.30% 12.80%

Consumer staples 6.10% 8.50% 8.30% 10.20%

Energy 4.60% 13.90% 2.40% 19.90%

Health Care 4.50% 13.10% 10.40% 14.30%

Industrials 3.50% 14.90% 3.20% 18.50%

Consumer Discretionary 1.10% 19.90% 9.40% 13.70%

Materials -3.50% 14.70% 4.70% 16.70%

Information Tech -4.30% 18.30% 15.70% 36.10%

Tele-communications -6.00% 5.70% 7.90% 13.50%

S&P 500 performance from 1992 to 2014

7

Market Reactions: FX movements MXN AUD CAD

DXY JPY CHF

Source: Bloomberg

8

Market Reactions: FX movements

Source: Bloomberg

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Market Reactions: FX movements

Source: Bloomberg

10

Market Reactions

Source: Bloomberg

Nikkei

US 2yr Yield US 10yr Yield

Gold

11

• With risk appetite dissolving, the JPY, CHF and gold have pulled higher while EM currencies

have crumbled. Despite a retracement on both fronts into the LDN session, the situation

may remain fluid.

• We expect markets to continue to partition the USD’s (two-way) reaction into two fronts –

negative implications for the USD against the likes of the EUR and positive implications for

the USD against EM/Asia on the back of a potential hit to global growth prospects.

• Global markets have preferred to err on the side of caution, based on the assumption that

Trump will maintain its policy rhetoric after being elected.

• Global central banks may presumably pause for a reassessment on the grounds that short

term global growth prospects could be impinged.

• Fed may not be dissuaded from a potential rate hike next month. Assuming Trump-related

negativity is still circulating at that juncture, this would cushion the USD’s vulnerability

against the core majors but potentially exacerbate USD resilience against EM/Asia. The

strong dollar narrative for 2017 had already been circumspect given the expected gentle

profile of expected hikes – two, according to the latest dot plots.

• Asian FX vulnerability to USD strength may be dialed up slightly. Any potential protectionism

or deterioration on Sino-US relations may lead to further depreciation pressure on RMB.

Given that the MAS is effectively on a ‘low-for-long’ trajectory with respect to the SGD

NEER, we expect the NEER to continue to inhabit the lower half of its fluctuation band and

possibly test its lower bound.

A Trump Presidency and FX – Initial Thoughts

Credit Views: • Risk-off sentiments in credit markets leading to a flight to safety - CDS has widened in

both Europe and Asia.

• Uncertainty on policies to depress corporate spending and investments including M&A

and possibly lead to lower issuance of corporate debt. That said, key trends for potential

new issuance likely to be:

• Driven by refinancing needs

• Less USD issuance by foreign issuers – CNH and EUR may benefit

• Financials issuance to continue on rising capital requirements and possibly lower

earnings from interest rates remaining lower for longer

• With the potential for shorter term rates to remain relatively low, the focus will again be on

carry for 2017 (repeat of 2016 themes). Duration positioning remains a wildcard.

• Sub-debt of stronger issuers to benefit more than weaker credits.

• HY will be supported by shorter duration paper with clear paths to redemption.

• That said, uncertainty could be positive for funds flows into Asia, particularly in 2H2017

after policy direction of a Trump administration becomes clearer. Short term focus is

likely to be more domestic in nature.

• Relative preference for IG to HY bonds to continue given uncertainty.

12

Fixed Income View

13

Fixed Income View

Source: Bloomberg

Commodities: ‘Uncertainty’ is the word of the day

14 Source: Bloomberg, OCBC

• Gold surged more than 5.0% in early Asian trading hours before settling lower to its

$1,300/oz handle.

• It’s too early to tell if gold will sustain its rally into the weeks ahead. Gold will largely

depend on US-centric data prior to the FOMC meeting in December. In addition, markets

will also be watching closely on President Trump’s possible protectionist policies (if

implemented). Importantly as well, the prospect for gold will also depend on market

reaction into the next few months ahead.

• The best case scenario in our view, is

for markets to re-engage its risk-on

gears especially when the suspense is

now over. Gold would then tread closely

to Fed-rhetoric and its rate decision in

December. However, ‘uncertainty’ is the

word of the day, and gold thrives on

uncertainties, and gold will be a clear

winner if future US policies are deemed

detrimental to global economic growth.

At this juncture, gold should remain

supported above $1,250/oz on safe

haven demand.

Commodities: A quick return to risk appetite

15 Source: Bloomberg, OCBC

• Similarly to the knee-jerk reaction seen in gold prices, crude oil prices took back some of

the losses seen during early Asian trading hours. However, movements in crude oil are

miniscule compared to the safe havens: WTI is gradually climbing back to its $45/bbl

handle as we speak.

• Given that the impact on crude oil is minimal, the drivers remain intact: Crude oil prices will

be underpinned by OPEC’s production talks at the end of November. Into the next year,

prices would be determined by the rebalancing story as demand picks up on a rosier

economic backdrop.

• Still, we admit that the economic

backdrop under President Trump is

even more uncertain, and volatility

may be increasingly seen into the

next year. In a nutshell, global

economic growth, and

consequently crude oil demand,

would be persuasive drivers for

crude oil prices. But for now, we

keep to our forecasts of $50/bbl at

year-end.

Policy Implications on Asia

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What will this mean for China? • RMB outperformed most EM currencies today benefiting from the falling expectation of Fed

rate hike and correction of DXY.

• Uncertainty remains on whether RMB is able to sail through the unchartered water

smoothly under President Trump should he deliver his campaign pledge to impose trade

tariff on import of Chinese goods.

• From flow perspective, a 20% loss of China’s trade surplus against the US under President

Trump is still manageable in our view for RMB.

• From expectation perspective, we think the current mess in the global political system may

help adjust if not correct RMB’s self-fulfilling depreciation expectation.

• In the world of ugly contest, the problem behind RMB seems less ugly in our view. As such,

RMB may benefit from President Trump in the medium term.

Source: Bloomberg, OCBC Bank

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan-

14

Mar

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May

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Sep

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No

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China's trade surplus against US as % of total trade surplus

Inflows Goods trade surplus US$229 billion

FDI US$76.8 billion

Portfolio inflow Small but expected to rise

Foreign debt Net inflow is small

Outflows

Service trade deficit US$113.5 billion

ODI US$121.4 billion

Portfolio outflow US$37.7 billion

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What will this mean for SG?

• Singapore is currently one of the 12 countries involved in TPP, a free trade agreement

which covers 40% of the world economy. With the TPP, Singapore will be able to enjoy

lower tariff and non-tariff barriers for both goods and services.

• Still, Singapore has close trade ties with the US, given that the nation-state’s exports and

imports as a total of trade is 6.3% and 11.2%, respectively.

• The absence of TPP coupled with a more trade-resistant US may be less favourable for

Singapore.

4.8%

5.0%

5.2%

5.4%

5.6%

5.8%

6.0%

6.2%

6.4%

6.6%

2010 2011 2012 2013 2014 2015

Singapore's exports to US as % of total exports

9.6%

9.8%

10.0%

10.2%

10.4%

10.6%

10.8%

11.0%

11.2%

11.4%

2010 2011 2012 2013 2014 2015

Singapore's imports to US as % of total imports

Source: Bloomberg, OCBC Bank

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What will this mean for SG? • Conversely, Singapore’s trade ties with China is

far more sizable when compared to the US. In

fact, Singapore’s exposure to China is more

than 20% of its GDP, above that of Taiwan,

Malaysia and Indonesia.

• Should China’s economic growth be negatively

affected by the new policies made by the

elected US president, Singapore will face

negative spill-over consequences.

• This could be mitigated if OBOR and RCEP

takes off.

Source: Bloomberg, OCBC Bank

-1.8%

0.2%

2.2%

4.2%

6.2%

8.2%

10.2%

12.2%

14.2%

16.2%

18.2%

2010 2011 2012 2013 2014 2015

Singapore's exports to CN as % of total exports

-1.8%

0.2%

2.2%

4.2%

6.2%

8.2%

10.2%

12.2%

14.2%

16.2%

18.2%

2010 2011 2012 2013 2014 2015

Singapore's imports from CN as % of total imports

20

What will this mean for SG?

• In a nut-shell, the strong trade ties between Singapore and China & US exposes the

nation-state to greater sense of uncertainty especially if trade protectionism is enforced.

The downside risks are exacerbated especially when Singapore is already facing a

lackluster manufacturing sector and weaker-than-usual trade numbers.

• The rise in trade protectionism in the US give rise to downside risk to Singapore’s headline

growth as well. At this juncture, GDP growth is already tipped at a sluggish 1.3% and 1.5%

in 2016 and 2017, respectively. Should protectionism reign into 2017, downside

growth risks may prevail.

Source: Bloomberg, OCBC Bank

0%

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4%

5%

6%

7%

-10%

-5%

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5%

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15%

20%

25%

1Q

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1Q

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3Q

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Singapore should see sustained subdued growth into 2017

(2010=100)

Manufacturing Construction

Services GDP YOY (RHS)

Forecast

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40%

Jan

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Little growth seen in Singapore's trade numbers

SG YOY Exports (RHS) NODX YOY

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What will this mean for Indonesia and Malaysia?

• Indonesia’s Rupiah rebounded after initial weakening. While its financial market may

remain prone to global volatility, its domestic-oriented economy should shelter it from

any anti-protectionist lurch by Trump.

• Meanwhile, Malaysian Ringgit weakened too but did not rebound. Its higher

dependence on exports as a growth driver is a potential factor. So is the effect of

lower oil price.

Source: Bloomberg, OCBC Bank

Indonesian Rupiah weakened, before reversing Malaysian Ringgit did not rebound

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Rest of Asia: Trade Exposures

• Assuming the rise of trade protectionism and negative spillover effects to China, it is

important to gauge trade exposures of Asian economies to both the US and China.

• Empirically, Hong Kong has the highest exposure to both the US and China in terms of

exports (64.1%) and imports (54.2%). This follows by Taiwan and Korea, which are

traditionally strong trading partners with the US and China.

• This suggests that these economies may see higher negative beta effect should trade

protectionism is enforced. Conversely, economies like Indonesia, Malaysia, Thailand and

India may be less adversely affected when compared to their regional peers.

Source: Bloomberg, OCBC Bank

54.2%

36.0%31.5% 30.6%

28.2% 27.6% 27.5% 27.0%23.2%

0%

10%

20%

30%

40%

50%

60%

HK JP KR TW TH PH ID MY IN

Imports from US and China as % total imports

64.1%

38.9% 37.7% 36.5%

27.8%23.3% 22.8% 22.4%

20.1%

0%

10%

20%

30%

40%

50%

60%

70%

HK TW KR JP PH ID MY TH IN

Exports to US and China as % total exports

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Disclaimer Treasury Market Research & Strategy

Selena Ling (LingSSSelena@ocbc.com) Tel : (65) 6530 4887

Emmanuel Ng (NgCYEmmanuel@ocbc.com) Tel : (65) 6530 4073

Wellian Wiranto (WellianWiranto@ocbc.com) Tel : (65) 6530 5949

Tommy Xie Dongming (XieD@ocbc.com) Tel : (65) 6530 7256

Barnabas Gan (BarnabasGan@ocbc.com) Tel : (65) 6530 1778

Terence Wu (TerenceWu@ocbc.com) Tel : (65) 6530 4367

OCBC Credit Research

Andrew Wong (WongVKAM@ocbc.com) Tel : (65) 6530 4736

Wong Liang Mian (NickWong@ocbc.com) Tel : (65) 6530 7348

Ezien Hoo (EzienHoo@ocbc.com) Tel : (65) 6722 2215

Wong Hong Wei (WongHongWei@ocbc.com) Tel : (65) 6722 2533