SINGAPORE – Emerging markets in Asia could fall victim to US President Joe Biden’s most recent Covid emergency plan worth $ 1.9 trillion.
So says James Sullivan, head of Asia ex-Japan equity research at JPMorgan.
“Most investors were very positive about Asia and emerging markets compared to the US,” before announcing details of the latest bailout package, Sullivan told CNBC’s “Street Signs Asia” on Friday.
“We have seen more than 18 consecutive weeks of fund inflow into Asia (ex-Japan) in recent months,” he said, adding that it is “very likely” that funds will start to rotate out of emerging markets in Asia. back to the US as a result of the boost to economic growth from Biden’s plan.
US President-elect Joe Biden speaks as he outlines his plan to fight the coronavirus and jump-start the country’s economy at the Queen Theater on Jan. 14, 2021 in Wilmington, Delaware.
Alex Wong | Getty Images
Biden on Thursday revealed the breakdown of his proposed package, titled the American Rescue Plan, which includes measures to sustain families and businesses until vaccines are widely distributed. The plan includes incentive checks and unemployment assistance.
Sullivan said JPMorgan had previously forecast a two percentage point pressure on US GDP as a result of the lack of fiscal stimulus.
“We had built into our forecast a $ 900 billion fiscal stimulus package that caused a 2 percentage point to 70 basis point shift in US GDP,” he said of the previous forecast.
With Biden’s $ 1.9 trillion plan now coming in at more than double the amount expected by JPMorgan, the analyst said it would be a “positive surprise” to both the market and the overall levels of economic growth in The United States.
“Investor money flows to Asia have been very aggressive in recent months, you could see that reversing,” said the analyst. “I would say we might be about halfway through trading at this stage.”
China’s markets – which performed to the top regionally in 2020 – could be among the first to be affected by this shift, Sullivan predicted.
“You will likely see the aggressive outperformers of 2020 as a source of income,” he said. “China would be very front and center there.”