Asian Stocks Drop as Bitcoin Soars to Record High Amid Trump

Photo : Reuters

Asian stocks showed a decline on Tuesday, with investors keeping an eye on the strength of the U.S. dollar and bitcoin's surge to an all-time high. While the dollar remained at four-month highs, much of the focus was on bitcoin, which rose dramatically to reach $89,637. The increase in bitcoin's value is largely attributed to investor optimism about the economic policies anticipated from Donald Trump's election victory, particularly tax cuts and deregulation, which are expected to stimulate asset growth.

The strong performance of bitcoin comes amid expectations that Trump's second term could bring favorable conditions for markets, particularly with regard to tax cuts that could boost equities. Despite the optimism in the crypto market, other currency markets showed mixed signals. The euro faced downward pressure, falling to a near seven-month low of $1.0687 overnight, as concerns about potential tariffs from Trump's administration weighed on the European currency.

The U.S. dollar, on the other hand, was expected to benefit from the anticipated policies under Trump's leadership. The dollar index, which tracks the strength of the greenback against six major currencies, was recorded at 105.57, just below the four-month high reached on Monday. Investors believe that Trump's policies, particularly his approach to interest rates, could keep U.S. rates higher for an extended period, benefiting the dollar.

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Vasu Menon, managing director of investment strategy at OCBC, commented on the market's reaction to Trump's clear victory. He noted that the result removed the uncertainty of a contested election outcome, which had been a concern for investors. However, he also cautioned that the medium-term outlook could become more uncertain if Trump pursued aggressive tariff hikes. Such measures could fuel inflation and deter the Federal Reserve from cutting rates, which would have negative repercussions on global trade and market sentiment.

Despite these potential risks, Menon emphasized that for now, markets are reacting positively to Trump's victory. The "animal spirits" of the market have been unleashed, driving optimism, especially in sectors like cryptocurrency. Trump's victory and the backing of pro-crypto candidates have led to a continued rally in bitcoin, with the cryptocurrency now targeting $100,000.

In terms of equity markets, the MSCI Asia-Pacific index, excluding Japan, was down by 1%. Stocks in Taiwan and South Korea saw notable declines, with Taiwan's market falling by 2% and South Korea’s down by 1%. Chip stocks in the region were particularly hard hit after reports emerged that the U.S. had ordered Taiwan Semiconductor Manufacturing Co to halt shipments of advanced chips to Chinese customers, which are often used in AI applications.

Japan's Nikkei index, however, was an exception, rising by 0.5%. This increase was largely due to a weaker yen, which was trading at its lowest levels in over three months, last recorded at 153.93 against the U.S. dollar. The weakening yen benefited Japanese exporters, who are expected to see increased competitiveness in global markets.

Meanwhile, Wall Street closed at record highs overnight, with Tesla seeing a significant jump of about 9%. The surge in Tesla’s stock was driven by the company’s market value surpassing $1 trillion, fueled by investor expectations that CEO Elon Musk's support for Trump would provide further growth for the company.

Bitcoin's dramatic rise, along with the broader market optimism following Trump's victory, has raised questions about whether these “Trump trades” have already played out. However, Manish Kabra, lead U.S. equities and multi-asset strategist at Societe Generale, believes there is still room for further gains. He argued that these trades still have a lot of potential.

On the Chinese market front, shares in mainland China saw slight increases, but sentiment remained largely negative in Hong Kong, where stocks fell by 1%. This comes in the wake of Beijing's latest stimulus package, which failed to meet investor expectations for direct consumer spending.

Investor focus will now shift to upcoming U.S. consumer price inflation data, set to be released on Wednesday, as well as speeches from key Federal Reserve officials, including Fed Chair Jerome Powell on Thursday. Market participants are closely monitoring these developments, with a significant chance (87%) of a 25-basis point rate cut by the Federal Reserve in December.

In the commodities market, oil prices were relatively stable, despite concerns over China's stimulus plan and ongoing oversupply issues.