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Asia lacking direction

Asian markets recovered in April and rose sharply. Carnegie Asia gained 4.8 percent, due in part to a stronger dollar.

The Asian markets lacked a clear direction this month. A number of external factors with unknown outcomes impacted investor mood and meant that there was no real conviction about where we are heading.

So, what is the matter? US bond yields rose to over 3 percent, indicating that the market expects higher inflation. The Fed plans to raise interest rates three more times this year, and although there was no hike now this is a concern. The dollar is showing record strength on the back of this belief in higher US rates.

A strong dollar is usually not good for Asia’s development as it drains these economies of capital. Weak Asian currencies also bring other risks. Over the past month, we have seen capital outflows and falling stock prices in Indonesia and the Philippines as investors sell countries with current account deficits.

A trade war does nothing to improve the situation. The United States has announced tariffs on steel and aluminium and import duties on a large number of other goods. The US also decided to block semiconductor exports to ZTE, a Chinese manufacturer of telecom equipment and handsets. Huawei, owned by the Chinese government, is now also threatened with an import ban on components from US Qualcomm.

Technology companies in Asia consequently performed weakly, with the exception of Samsung Electronics, which issued a very strong report. Samsung has the advantage of being essentially self-sufficient in components; a winning strategy in this position. In the positive side is the progress on peace talks on the Korean Peninsula. Even though Donald Trump is claiming the honour, the real winners if South and North Korea can make peace are found in Asia. However, a potential future reunification could be very costly for South Korea.

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