Asian Markets Rally on Biden Victory

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Asian stock markets are breathing a sigh of relief on Monday, now that the result of the U.S. presidential election is clear. It’s a sea of green for Asian indexes on my screen.

Trade-heavy markets in particular such as China, Japan, Singapore and South Korea are seeing their stocks climb higher in hopes that Biden will take a less-confrontational, more-constructive approach on trade.

The U.S. dollar is also losing ground. The Chinese yuan is hitting a 28-month peak, the Korean won is climbing to its highest level since February 2019, and the Singapore dollar is rising to its highest level so far this year.

The Indonesian rupiah, which in March weakened to levels last seen during the Asian Financial Crisis in 1998, is also gaining ground. Investors look willing to take on more risk now that the U.S. election has passed, with emerging markets prime beneficiaries.

The Nikkei 225 in Japan is Asia’s biggest gainer on Monday, traditional Japanese industrial companies seeing their shares rise 2.1%, although the broad Topix index of all major stocks in Japan finished with a more-muted 1.4% advance.

The other major gains came for the CSI 300 of the largest stocks in Shanghai and Shenzhen, which ended up 2.0%, with the Stock Exchange of Thailand index also finishing up 2.0%.

Some of the response is simply a relief rally with the uncertainty of the U.S. election now behind markets. But Asian economies are expected to gain ground with Biden likely to de-escalate tensions on trade, while U.S. monetary policy is set to expand stimulus and therefore weaken the U.S. dollar.

Trump’s very first action on taking office was to withdraw the United States from the Trans-Pacific Partnership. The TPP, a bid to create the world’s largest trade bloc, subsumed bilateral negotiations between the United States and Japan. Former Japanese Prime Minister Shinzo Abe expended considerable political capital getting the influential Japanese farming lobby to agree to the deal, only to be left jilted at the altar by Trump, an ally he had courted immediately upon Trump’s successful election.

Abe’s successor, Yoshihide Suga, will now engage with Trump’s successor. It will be interesting to see the future direction of the “Quad” alliance that has brought together Japan, the United States, India and Australia, with the unstated aim of containing China’s rising influence in Asia.

Biden may now seek to join the TPP’s successor, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which the remaining 11 nations agreed. Biden has certainly pledged, on his first day, to sign the United States back up to the Paris Agreement on climate change.

Biden may be more effective in building diplomatic alliances, whereas Trump alienated many traditional U.S. allies. Australian shares had their best session since the virus-related downturn in March, the S&P/ASX 200 ending up 1.8% and the NZX 50 in New Zealand finishing with a 1.8% gain as well.

Russian President Vladimir Putin and Chinese President Xi Jinping have yet to reach out to congratulate Biden on his victory. Trump had also expressed admiration for other authoritarian strongmen such as Turkish President Recep Tayyip Erdogan, Brazilian President Jair Bolsonaro, the Saudi Arabian king and crown prince, and North Korean leader Kim Jong-un. As of Monday afternoon Asian time, all those leaders have stayed silent on Biden’s election. It has been a useful exercise for anti-democratic regimes to point to the “chaos” of the U.S. electoral process as a way of bolstering their own governance.

The state-owned Global Times mouthpiece used to push Beijing’s foreign-policy agenda says in an editorial that Biden may go further in pushing China on human rights over the pro-democracy crackdown in Hong Kong and the concentration camps for Uighur Muslim minority citizens built in the western province of Xinjiang.

At the same time, the state-owned paper says it may be possible to pop the “bubbles” of pressure created by outgoing President Donald Trump in the election campaign. “Beijing should undertake to communicate with the Biden team as thoroughly as it can, making greater joint efforts to recover China-U.S. relations to a state of great predictability,” the editorial states.

Trump was bipolar on China, saying that he and Chinese counterpart Xi “love each other,” but equally using China as a convenient, little-known and far-off foe, to drum up votes. He was right to push China on the origins of the coronavirus, which had the central Chinese city of Wuhan as its epicenter. China has done its very best to stop efforts to examine just how the outbreak began, undermining efforts by the World Health Organization to present impartial evidence, and blocking efforts to send WHO scientists to Wuhan itself.

It is hard to imagine that Biden administration will act “tougher” over China, the Global Times states, though the Democratic Party is “more stubborn about values.” Biden is highly likely to continue the “maximum pressure” campaign of his administration, only “probably not with reckless gambling-style moves,” the editorial states.

India is cheering the election of Vice President Kamala Harris, whose mother’s family trace their roots to southern Tamil Nadu province. Half-Indian, half-Jamaican by parentage, Harris visited India frequently in her youth. While she will surely seek to bolster India’s position as an American ally, she may also push right-wing Prime Minister Narendra Modi on his treatment of non-Hindu citizens, and human rights. The Sensex main stock index in India was up 1.4% in afternoon trade.

Here in Hong Kong as well as in Taiwan, we will wait to see how Biden approaches diplomacy over our efforts to maintain autonomy in the face of pressure from Beijing.

Taiwan, a Democratic nation that has put in place one of the world’s most-effective programs to combat the coronavirus, remains blocked by mainland China from joining the World Health Assembly and the WHO. Taiwan’s foreign ministry says it has been excluded from a World Health Assembly meeting that starts today and runs all week on instructions from China. The WHO’s exclusion of Taiwan is purely on political and not on public-health grounds, undermining the group’s whole mission.

Trump accepted a call of congratulation from Taiwanese President Tsai Ing-wen after he won election, an unprecedented move. It is not clear if Biden will do the same. As Taiwanese lawmakers fret that Biden will be more China-friendly, the head of Taiwan’s Mainland Affairs Council, Chen Ming-tong, has told them there’s “no need to worry,” that while the White House’s tactics may change toward China, “there will be no change in its China strategy.”

Asia Assesses Costs as Nations Bar Boeing’s 737 Max From Airspace

China, home to 22% of the 737 Max planes in operation so far, was the first nation to ground the plane.

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Airlines and industry in Asia are busy figuring out what the grounding of the 737 Max 8 planes made by The Boeing Co. (BA) means to their order books, flight paths and bottom line.

China was the first nation of 42 globally to order all 737 Max 8 planes to keep their wheels on the ground. It is home to 22% of the 350 aircraft of that model delivered around the world for service to date. Boeing has received 4,661 orders for the planes, according to the brokerage Nomura.

The main Chinese airlines with those planes now suspended from operation are Air China Ltd.  (AIRYY) , China Eastern Airlines Corp. Ltd. (CEA) and China Southern Airlines Co. Ltd.  (ZNH) . Shandong Airlines SH:200152, and the unlisted carriers Shenzhen Airlines and XiamenAir, also fly the plane.

Singapore has barred all Boeing 737 Max flights from its airspace. That effectively grounded all six of that aircraft for SilkAir, the Asia-specialist wholly-owned subsidiary of Singapore Airlines Ltd. Singapore Airlines  (SINGY) itself does not operate any of the planes.

India has likewise grounded any 737 Max planes in service with its carriers. Jet Airways Ltd. BOM:532617 and SpiceJet BOM:500285 are the Indian airlines affected, although India is not allowing any of those models into its airspace.

Australia, Hong Kong, Malaysia, New Zealand and Vietnam have joined 35 other nations, most of them in Europe, in temporarily barring 737 Max 8 flights from their airspace even though their carriers don’t fly the plane.

South Korea has grounded the two planes of that model flown by budget carrier Eastar Jet, and Mongolia has taken the same action with the sole version of that plane flown by MIAT Mongolian Airlines.

The biggest effect of the bans in my part of the world is felt by unlisted Lion Air, which has taken delivery of 14 of the planes. That includes the plane in question on Lion Air Flight 610, which crashed into the Java Sea on October 29, 2018, killing all 189 on board.

Indonesia has ordered the grounding of all 737 Max 8s, covering the 13 remaining Lion Air planes and the single plane of that model in service with national flagship Garuda JK:GIAA, which at one point had such an appalling safety record it was barred from flying to the European Union.

The second flight disaster to feature a Boeing 737 Max 8 is of course Sunday’s crash of Ethiopian Airlines Flight ET302. Ethiopian Airlines has grounded its remaining four 737 Max 8 planes.

The fact the Lion Air flight nosedived into the sea 12 minutes after leaving the Jakarta airport on route for Bangka Island has an eerie counterpart in the crash in Africa, where the jet climbed erratically and then crashed six minutes after departing Addis Ababa for Nairobi.

In both flights, the pilot reported trouble immediately after takeoff. With the Lion Air flight, the nose dipped down dangerously more than two dozen times, and information from the “black box” data recorder shows the pilots were trying to wrestle control of the plane from its system.

Both investigations are now examining maneuvering characteristics augmentation system, or MCAS, installed on the two crashed planes. In the case of the Lion Air flight, the plane’s computer received faulty sensor data that led the computer to believe the plane had stalled. That then caused the MCAS system to push down the nose, to avert the non-existent “stall.”

Cathay Pacific Airways Ltd.  (CPCAY) , Japan Airlines Co., Ltd.  (JAPSY) and All Nippon Airways (ALNPY) do not fly the 737 Max. ANA says it is not, so far, suspending orders for 30 of the planes, pending any findings from the investigation in Ethiopia.

Among Southeast Asian airlines, Vietnam Airlines does not yet fly any of the 737 Max planes, but the carrier has 100 on order. Lion Air has 187 on order, and Garuda another 49.

The Singapore-based aircraft leasing company BOC Aviation HK:2588, the largest of its type in Asia, has five operational 737 Max aircraft that are now grounded, and another 82 on order.

AirAsia (AIABF) and its long-haul subsidiary AirAsia X don’t fly that model of plane, and neither do Thai Airways BKK:THAI, Bangkok Airways BKK:BA or Cebu Pacific CEBUY. Nok Airlines BKK:NOK in Thailand has six 737 Max on order, but isn’t yet flying any.

Nomura notes that AirAsia in particular stands to gain from the temporary grounding of the fleets of Lion Air and SilkAir, since it flies many of the same routes. SilkAir, which had been awaiting delivery of another 32 737 Max 8s, says the grounding of its planes will disrupt its schedules. It continues to fly 17 Boeing 737-800NGs, which it says are not affected.

Nomura also warns of the potential fallout if customer sentiment turns against the Boeing 737 Max. Airlines could attempt to cancel the 4,661 orders for that plane with Boeing, and lack of delivery could lead to short-term scheduling issues. Boeing delivered around 140 of the planes last year.

The Indonesian arm of AirAsia suffered its own disaster in December 2014 when Flight 8501 crashed into the Java Sea, killing all 162 on board, after departing the Javanese port city of Surabaya on route to Singapore. The plane in question was an A320 made by Airbus SE (EADSY) .

Manufacturers are also assessing any impact from the double 737 Max disasters. The Japanese chemicals company Toray Industries, Inc.  (TRYIY) sells carbon fiber as a secondary structural material for use in Boeing 737 Max planes.

Although more of the company’s fiber is used in making Boeing 777 and 787 planes, Toray’s fiber sales related to this plane model are around ¥2 billion to ¥3 billion (US$18 million to US$27 million), Nomura notes. Toray should be able to absorb the hit to sales and operating profits, the brokerage says.

AirAsia Maverick Turns Venture Capitalist to Seed Southeast Asia

Fast cars, fast planes, fast football (of the British kind) — and now, fast money. Tony Fernandes has always had a maverick streak.

Asia’s answer to Richard Branson, the billionaire behind the Virgin empire, Fernandes has taken pride in taking on the big boys in aviation, and winning. Now the co-founder of AirAsia (AIABF) is taking on Silicon Valley.

Like SoftBank Corp.’s (SFTBY) founder Masayoshi Son, Fernandes is a self-made pioneer in Asia, a continent known for its family money more than its entrepreneurs. And like Softbank and Son, he is now setting up a venture-capital fund to invest in startups.

Neither 21st century tycoon exactly shuns the spotlight, either. SoftBank, backed by billions in Saudi funding, has aspirations to take on the world through its Vision Fund.

AirAsia’s aim is more modest, and set squarely on its home market in Southeast Asia, a grounded and sensible start.

AirAsia transferred its digital businesses into a new entity, RedBeat Ventures, in the middle of last year. It announced this week that it will partner with arguably Silicon Valley’s most-successful accelerator, 500 Startups, and set up a venture-capital fund, RedBeat Capital.

AirAsia is Asia’s most-successful budget airline. In a continent where collusion between “rivals” on prices and routes has been commonplace, it has fought for a place for itself by flying out of secondary airports in major cities to keep costs down.

That works, and then some. AirAsia reportedly has the lowest operational costs in the world for an airline, with a unit cost, per available seat kilometer, of 3.5 U.S. cents. That means it breaks even if its flights are only half-full (52% full, to be precise).

RedBeat Capital will be based in San Francisco, and will seek to “develop a travel-technology ecosystem,” according to Fernandes. Its remit is to find startups worthy of investment in travel, lifestyle, logistics and fintech for Southeast Asia.

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