SINGAPORE – Asia’s emerging markets could become a victim as a result of Covid’s latest $ 1.9 trillion aid plan for US President-elect Joe Biden.
This is according to James Sullivan, head of Asian stock research, formerly Japan, at JPMorgan.
“Most investors were very positive about Asia and the emerging markets in relation to the US” before the details of the latest bailout package were announced, Sullivan told CNBC’s “Street Signs Asia” on Friday.
“We have seen more than 18 consecutive weeks of inflows of funds into Asia, except Japan, over the past two months,” he said, adding that it is “highly likely” that funds will start to exit emerging Asian markets back to United States as a result of the economic growth momentum of the Biden plan.
US President-elect Joe Biden speaks as he sets out his plan to fight the coronavirus and boost the nation’s economy at the Queen theater on January 14, 2021 in Wilmington, Delaware.
Alex Wong | Getty Images
Biden on Thursday revealed the details of his proposed package, entitled American Rescue Plan, which includes measures to support families and businesses until vaccines are widely distributed. The plan includes stimulus checks, as well as unemployment support.
Sullivan said JPMorgan previously predicted a two percentage point drop in US GDP as a result of a lack of fiscal stimulus.
“We included in our forecast a $ 900 billion fiscal stimulus package, which led to a move from a 2 percentage point reduction to a 70 basis point boost for US GDP,” he said of the previous forecast.
With Biden’s $ 1.9 trillion plan now more than twice the amount expected by JPMorgan, the analyst said it will be a “positive surprise” for the market, as well as for overall levels of economic growth in the U.S. .
“The flow of funds from investors to Asia has been very aggressive in the past two months, you can start to see this reversal,” said the analyst. “I would say that we may be in the middle of the negotiation process at this stage.”
China’s markets – among those with the best regional performance in 2020 – may be among the first to be affected by this change, predicted Sullivan.
“You are likely to see aggressive 2020 outperformers as a source of funds,” he said. “China would be far ahead and in the center there.”