Trump’s policy on immigration rattles investors
Faced with growing tensions surrounding the policy shift, investors again turned toward traditional havens, including gold, bond and the Japanese yen, which were largely shunned immediately after the U.S. election last year. Local bonds saw a capital influx of 43 billion won ($37 million) between Jan. 24 and 31, according to the financial investment industry. Other local investors have also fled to global bonds as net inflow of global bonds from Korea amounted to $30.5 billion on Feb. 2.
The latest figure draws a sharp contrast with the period right after the election. On Friday, the U.S. president issued an executive order that will deny refugees and immigrants from seven Muslim-majority countries entry to the United States.
As many expected, Trump’s pledges to spend heavy on infrastructure and cut taxes could lead to higher inflation and U.S. government debt. In November, about $1.2 trillion in investments was wiped from the bond markets as the yield of the U.S. Treasury’s 10-year note climbed to a record high in 2016.
Since Trump’s victory, the yield on 10-year Korean government bonds also surpassed the psychologically significant 2 percent level last year though the rate stood at 1.69 percent at the end of October, according to data from the Korea Financial Investment Association. After the order, the yield rate moderated to 2.155 percent Thursday after peaking at 2.2 percent in mid-December.
Analysts are divided as to whether the performance will remain strong as other factors such as the pace of U.S. Fed’s rate hike could have an effect.
“The domestic bond market is expected to stay flat or rise slightly on the Fed’s rate freeze and lower chances of a March rate hike,” said Ahn Jae-kyun, an analyst at Shinhan Investment.
“It seems the Fed has no reason to change its perception of the economy since the Trump administration has yet to outline its detailed fiscal expansion measures,” he said. “Fiscal policy will likely take shape after the debt ceiling negotiations scheduled in March, so there is limited possibility of a rate hike by the Fed in March.”
Park Jong-yeon, an analyst at NH Investment & Securities, noted that the delayed fiscal policy from the U.S. will keep capping capital outflow on the bond market. “With the diminished expectation on the faster pace of rate hikes and the possibility of issuing large bonds, the capital outflow in the bond market moderated,” he said.
Gold, another major haven asset, is also buoyant with more investors opting for safer assets. Global gold prices rose the most in a month on Feb. 1. Domestic gold prices also rose as the price jumped to 45,044 won per gram from 44,817.9 won on Jan. 31, according to data from Shinhan Bank.
The gold fund also is seeing an upturn, attracting 5 billion won between Jan. 24 and 31.
BY PARK EUN-JEE [firstname.lastname@example.org]