Daily Management Review

This Year, the Surprise Outperformer was this Asia Market


This Year, the Surprise Outperformer was this Asia Market
Pakistan shares still managed to be the region's 2016 star outperformer as Donald Trump's surprise U.S. election win put the kibosh on a late year market rally in Asia.
The "Trump Tantrum" spurred outflows from emerging markets globally. implying higher U.S. interest rates, higher inflation and a stronger dollar, the selloff was partly driven by expectations the incoming administration would pursue more fiscal spending. Outflows from the emerging-market companies was spurred on the prospect of higher, less-risky returns on Treasurys as the sector would hurt the ability of emerging-market companies to service dollar-denominated debt.
Even though the country briefly faced its own Trump moment, despite the tantrum dampening Asia markets, shares in Pakistan surged. Trump was willing to play "any role that (Sharif wanted him) to play" to resolve Pakistan's problems, Pakistan’s government reported that the president-elect telling Prime Minister Nawaz Sharif in early December. The remarks, if accurate, could aggravate hostility between arch-enemies Pakistan and India.
Making it among the world's best-performing markets, the Karachi All-Share Index had surged more than 45 percent for the year before Friday's open even with the hiccups,
Expectation for the market to regain the "emerging market" label was partly responsible for the gains.
After the exchange had imposed a market floor rule, which prevented shares from falling, in response to gyrations caused by the global financial crisis, in 2008, the Karachi Stock Exchange was demoted to frontier market status, from emerging market, by MSCI.
Credit Suisse noted in a report in December, indicating operational improvements and increased availability for foreign investors, MSCI announced mid-year that Pakistan would regain the emerging-market classification in the middle of 2017.
Outperforming most of its frontier-market peers, the country has a cluster of "highly profitable value-creative corporates," Credit Suisse, which still ranks Pakistan as a frontier market, noted.
With SET index climbing more than 19 percent in 2016, Thailand was another outperformer among Asia's stock markets.
The Thai market is expected to remain a safe haven as the country's economy had seen its trough and the election, due in the fourth quarter of next year, would likely alleviate political uncertainty, analysts at CIMB said in an early December note.
Even as the stronger dollar weighed regional peers, as the country enjoyed a large current account surplus, CIMB also expected the bhat to remain relatively stable.
Despite expectations that the Trans-Pacific Partnership trade deal, of which the country would have been a major beneficiary, was dead-on-arrival after Trump's election, Vietnam's market also posted a strong year, with the VNI rising nearly 15 percent for 2016, before Friday's open. Trump had campaigned on a vow to kill the deal.
But "Vietnam's export outlook is still positive having concluding bilateral trade agreements with South Korea and the European Union", UOB said in an early December note.
Vietnam is offering "highly profitable value-creative corporates.," Credit Suisse's note also pointed out.
Indonesia's stock market was called a strong reform and growth story and remained overweight by Nomura in an early December note.
"A domestic demand-led (both consumption and investment) recovery is coming up, and we expect equity earnings to perform similarly – sustaining upside," Nomura said.
Concerns that Trump might start a trade war, continued capital outflows from the mainland and a weaker yuan, combined to give China's shares a hit.
After shedding around 5.6 percent in 2015, India's shares have also performed poorly, with the Se3nsex index edging up around 1 percent for the year.