US-Iran Ceasefire to Fuel Asia Relief Rally, Strategists SayAI Quick Read(Bloomberg) -- Donald Trump’s announcement of a two-week ceasefire between the US and Iran brings welcome relief to Asian markets, according to strategists. Equities should see strong rallies across the region in the near term, they say.
However, the lack of clear details on the agreement and lingering concerns over the Strait of Hormuz are cause for caution and volatility will remain high, they warn.
Nick Twidale, chief market analyst at AT Global Markets
“This ceasefire is huge step in the right direction for risk sentiment ... The fact that the market was prepared for this to go either way today will exacerbate moves as it will come as a double relief rally.
I expect to see big percentage gains across the region today, but be aware that we can still see more volatility on any fresh headline. These are big moves in markets which should promote further volatility.”
Hiroyuki Ueno, chief strategist at Sumitomo Mitsui Trust Asset Management
“This is a relief for markets. For the time being, things have calmed down. Iran has actually come to the table, which is a step forward. There’s now a feeling that high oil prices won’t continue for too much longer.”
Stocks that had been “dumped” during the rout over the past month will be repurchased, fueling a “decent” rebound in the short term. In Japan, tech and AI stocks look best positioned for buying.
“But things are not guaranteed to go smoothly from here, and investors shouldn’t get ahead of themselves.”
Matthew Haupt, a hedge fund manager at Wilson Asset Management
Markets will be risk-on “for a bit,” but we “still need to see Strait of Hormuz open ... it will be 2 weeks on edge.”
“I was adding last night in anticipation and added a tiny bit this morning. Still feels like there will be a few twists and turns left before we get an outcome.”
Expects equities in markets that import most of their energy, including Korea, to rally.
Carol Kong, a strategist at Commonwealth Bank of Australia:
There have been knee-jerk reactions across FX, but “crucially, there is no plan on how the war will end. We still expect the US will have to escalate eventually to end the war. So while the USD may ease further in the immediate term, it will struggle to hold onto losses sustainably.”
John Foo, founder of Valverde Investment Partners
“Trump Tacos again.” The ceasefire headlines will lead to some risk-on moves due to possible a energy reprieve for ASEAN and North Asia.
“Clearly there will be focus on beaten down growth stocks and sectors” such as North Asian tech, Vietnam, Singapore and Thailand.
Brendan McKenna, an emerging market economist and strategist at Wells Fargo:
Emerging market currencies are likely to strengthen while credit spreads narrow across the board as the escalation scenario has been avoided for the time being. “The high-beta names that have been beaten up a little bit lately,” including South Korea and EM Asia, “can benefit from this.”
Whether the rally holds, however, is “tricky. This positive sentiment we’re seeing now can last throughout the next trading session, but if we don’t see something ‘signed’ and on paper in the coming days, we’ll be right back in the same spot.”
Ayako Sera, senior market strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo
In Japan, “I think would be difficult for the Nikkei to keep rising as far as 60,000” unless “we start to see a true ceasefire ... The market right now is basically in a euphoric mood.”
The dollar-yen may go to the low 158 range, but going to the 157 level may be difficult since the war is not completely over yet.
“JGBs will be bought today, but energy prices aren’t going to return to previous levels.”
The chance of a BOJ rate hike has dropped slightly as the justification for raising rates to curb inflation has weakened somewhat in the near term.
--With assistance from Mia Glass and Matthew Burgess.
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