Barack Obama's re-election looks a clear win for Asian assets. Markets see-sawed after the U.S. vote as investors disagreed over whether four more years for the President are good or bad for the global economy. But whether the U.S. falls off its fiscal cliff, or quantitative easing sparks a robust recovery, more dollars seem destined for Asia.
Investors are betting on two big questions. First, will the United States avoid the so-called fiscal cliff at the end of the year, when $607-billion (U.S.) of spending and tax breaks expire? And second, will the Federal Reserve's promise to keep interest rates near zero and buy $40-billion in mortgage-backed securities every month succeed in reviving employment and growth in the world's largest economy?
The odds are that Mr. Obama and the U.S. Congress will push the fiscal cliff off a few months. If they can then reach a compromise to avert the cuts, global markets would rally, particularly in trade-sensitive Asia.
If U.S. politicians fail to reach a deal, the consequences would be severe. BlackRock projects that U.S. growth would be cut at least in half. Each percentage point reduction would likely cost Asia's export-led economies about 0.25 percentage points in growth. But if the global economy slows, investors will likely favour faster-growing Asian countries like India or Indonesia, which have less export exposure. Asian bonds would benefit from expectations for lower interest rates.
Then there's quantitative easing. With Mr. Obama remaining in office, Ben Bernanke is likely to keep his job as Fed chairman, so quantitative easing will likely continue until it works. QE tends to weaken the U.S. dollar and send investors searching for exotic Asian assets with higher yields. That's good for Asian currencies and bonds, particularly those of relatively high-risk countries and companies.
The best outcome of all is if QE succeeds in reviving the U.S. economy. This would be a boon to Asian exporters – particularly South Korea and Taiwan – and would provide an important crutch to China as it battles a domestic slowdown. Which ever way you slice the Obama win, however, Asia keeps coming up a winner.