Investors in Asia are shrugging off Democrat hopes that a fresh candidate could help them regain the US presidency - instead seeing only the ‘Trump Trade’ benefitting should Joe Biden withdraw.

To them that means pressure on everything from broad China stock benchmarks to the shares of Korean battery makers, and a potentially torrid time for regional currencies with the dollar likely to push higher. And should Biden step out of the race without immediately nominating a successor, volatility could surge in the short-term, they said.

“If Biden drops out, it could strengthen Trump’s position,” said Manish Bhargava, a fund manager at Straits Investment Holdings in Singapore. “It will likely be negative for Asian equities and China in particular.”

Former president Donald Trump’s poll numbers are rising even as Biden’s grasp on the Democratic presidential nomination appears to be slipping. Prediction markets on Thursday saw Vice President Kamala Harris as more likely than the incumbent to win the election, though Trump is still the favourite.

Global investors see the Republican’s policies on tariffs, immigration and deficits leading to a stronger dollar, higher bond yields and a more favorable environment for US equity sectors like bank, health and energy. Overseas currencies from the Taiwan dollar to the Chinese yuan to the Mexican peso are seen as particularly vulnerable.

For both Takeshi Ueno, senior economist at Nissay Research Institute and Teppei Ino, Tokyo head of global markets research at MUFG Bank Ltd, a Harris candidacy is nothing to fear for traders backing a return to the White House for Trump.

“If Vice President Harris is the presidential candidate, I do not think the formation of Trump’s dominance will change,” said Ino. “In this case, the Trump trade is likely to continue.”

One complicating factor though is Trump’s criticism of the current weakness in the yen and the yuan, which could cap pressure in those currencies even if his victory is expected to broadly strengthen the dollar, he added.

Whether markets convulse or stay calm may depend on whether a name immediately appears on the Democratic ticket should Biden bow out, market participants say.

“Expect chaos across markets” if there’s no candidate named to replace Biden, said Shoki Omori, chief desk strategist at Mizuho in Tokyo. “If we get a headline that says Biden drops out without the Democrats having any names to replace him, then dollar-yen will be sold.”

How Democrats would set up his exit is unclear and that makes betting on the ultimate victor a risky prospect, according to Homin Lee, senior macro strategist at Lombard Odier Singapore Ltd.

“A lot of variables here that deter a more aggressive speculation on the eventual outcome,” Lee said. “We suspect that the markets will operate on the assumption of Trump’s edge in November, but everyone will have to wait for the eventual outcome on the Democratic side.”

Xin-Yao Ng, director of investment at abrdn Plc in Singapore sees consensus moving toward a Trump victory, which spells trouble for investors in Asian renewables and China shares.

Trump “will be negative for Korean batteries. He’s also not a ‘green’ advocate, so renewables-related export to the US will see risks,” Ng said. “But China probably suffers most to start with. China exports to the US will be hurt for sure, and that might go across sectors.”

Asian markets will also have relative winners despite the region likely coming under pressure from a second Trump presidency, according to Hebe Chen, an analyst at IG Markets Ltd.

“The appeal of Asian stocks and emerging markets could potentially lose some shine given their higher risk beta,” she said. “However, in terms of individual markets, Japan and India might be the top two safest places thanks to their proven better relationship with the US during Trump’s first term.”

  - Bloomberg