What Analysts in Asia Are Saying About Kim-Trump Summit, Tariffs

(Bloomberg) -- Investor sentiment has been buoyed in Asia by the proposed meeting between U.S. President Donald Trump and North Korean leader Kim Jong Un, though doubts remain on its outcome. There is a sense of relief that some exemptions were announced with Trump’s decision to levy tariffs on steel and aluminum imports, though market participants are focusing on actions to follow from countries including China.

The MSCI Asia Pacific Index climbed as much as 0.8 percent though pared gains as the Asian morning progressed while the yen slumped. South Korea’s Kospi index rose as much as 1.8 percent, and the won was little changed.

The following are a selection of comments from investors and analysts:

‘Significantly Positive’

Huh Nam Kwon, CEO at Shinyoung Asset Management Co.:

• Trump’s response is a significantly positive event. The rally right now is largely driven by an inflow from passive funds.
• Risks of a war on the Korean peninsula are highly likely to be eased. So far, South Korean equities have been undervalued by 30 percent compared with peers, and that means, the Kospi could rise 30 percent this year to more than 3,100 points if Kim promises to take steps to discard his nuclear weapons program and inter-Korean businesses are resumed.
• If the risk of a war is resolved, it will also have a huge impact on the economy, such as consumer sentiment, GDP data, and exports, inflow of foreign visitors, and tourism.

Wait and See

Ashley Perrott, head of pan-Asia fixed income at UBS Asset Management in Singapore:

• “Looking at market reaction last night after the news was fairly muted. The fact that they’ve been willing to compromise and enter into some exemptions with countries like Canada and Mexico and leaving the door open for other countries to negotiate for some exemptions is obviously made markets calmer than where they were a couple of days ago fearing the worst.”
• “He uses these things as a bit of a negotiation tactic so that’s what they’re doing in this case as well. It’s something that can be negotiated so that makes markets a bit more comfortable.”
• Over the last 15 to 20 years there’s been a number of meetings and false dawns with North Korea promising to stop their nuclear program but then not stopping it. “Let’s wait and see what comes out of the talks. It’s probably a bit too early to say.”
• “It doesn’t prompt us to change things dramatically at this point in time. Not changing anything as a result of the last 24 hours.”

Limited Impact

Yuji Kameoka, chief FX analyst at Daiwa Securities Co. in Tokyo:

• It’s a positive event that will ease the geopolitical risk on the Korean Peninsula and the won and the yen may react more to the news. However, investors and traders may not be overly optimistic and stay on the sidelines to see the development from here.
• The market impact may be limited unless North Korea actually take steps to move toward denuclearization as there had been some talks like this before but the situation hasn’t changed much.
• The Trump’s trade policy is a factor to weigh on the dollar in the long term, although the dollar got a boost as the latest announcement exempted some countries. 
• The U.S. trade deficit may shrink on the steel and aluminum, but the overall deficit may not narrow just because of the tariffs. Instead, there will be negative impact on the U.S. economy, which may catch attention of investors and traders.

China, Europe Reactions Eyed

Shigeki Yoshitoshi, Tokyo-based head of Japan foreign exchange and commodities sales at Australia & New Zealand Banking Group:

• “The market hasn’t really digested the latest tariff announcement.” There is a sense of relief with some countries being exempted and rooms being left for negotiations. Now the question is how China and some European countries will react to this and we need to be careful about what sort of actions might be taken. The tariff itself leads to dollar weakness.
• The actual talk between the U.S. and North Korea would be short-term positive and is a reason to buy dollar-yen. “But given how talks like this have happened before but been betrayed with no material results, for the mid-to-long term, it’s still unclear and would have a limited impact on the markets.”

Buying Won vs Yen

Nader Naeimi, head of dynamic markets at AMP Capital Investors Ltd.:

• “This goes a long way to bring down the geopolitical risk premium in markets. I am buying KRW/JPY.”
• Recent developments and news have actually had more of a positive undertone that it is widely acknowledged and North Korea’s news further reinforces that.
• “I am buying Japanese stocks as well as the European materials sector. Buying Japanese banks as well as electronic equipment, not buying EM equities yet as I believe USD strength is currently underway.”

Dollar to Benefit

Mansoor Mohi-uddin, head of currency strategy at NatWest Markets in Singapore:

• The Korea announcement is helping investor sentiment and pushing the yen weaker against the rest of the majors. Sentiment was already helped overnight by the Trump administration’s steel and aluminum tariff announcement allowing for countries to be exempt. The dollar is likely to benefit further today if the payrolls report again shows wage growth picking up.

To contact Bloomberg News staff for this story: Yumi Teso in Bangkok at yteso1@bloomberg.net, Heejin Kim in Seoul at hkim579@bloomberg.net, Daisuke Sakai in Tokyo at dsakai2@bloomberg.net, Hooyeon Kim in Seoul at hkim592@bloomberg.net, Lilian Karunungan in Singapore at lkarunungan@bloomberg.net, Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net.

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Cormac Mullen

©2018 Bloomberg L.P.

With assistance from Yumi Teso, Heejin Kim, Daisuke Sakai, Hooyeon Kim, Lilian Karunungan, Abhishek Vishnoi