What This Could Mean for Equity Markets
US involvement continues to be necessary to Asian markets despite no current multilateral partnership. In the ASEAN bloc, it is the largest investing partner, investing more than the next three investment partners combined.
Asian stocks have historically had a positive correlation with US stock markets. This has a deeper relationship than driving sentiment. When US equity markets rally, the stocks become more expensive, which triggers a relocation of funds towards other countries. Equity markets also drive the US dollar. With an appreciation in the greenback, foreign equities become cheaper in US dollar terms and attract more investments from the US. The relationship between Asian and US equities could strengthen with the IPEF. There is also an emphasis on collaborations in the health, cyber and tech spaces. For Asian equity markets, this could potentially lead to rallies in these sectors.
The correlation between US and Chinese stocks has increased over the past decade, with China’s emergence as a global economy. The correlation is also reflected in the market sentiment for these indices, as seen on Acuity’s Sentiment Widget.