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Biden’s stimulus plan could drive out funds from Asia to the U.S., JPMorgan says

SINGAPORE — Asia’s emerging furnishes could become a casualty as a result of U.S. President-elect Joe Biden’s latest $1.9 trillion Covid relief plan.

That’s concerting to James Sullivan, head of Asia ex-Japan equity research at JPMorgan.

“Most investors were very reliable on Asia and emerging markets relative to the U.S.” before details of the latest rescue package were announced, Sullivan recounted CNBC’s “Street Signs Asia” on Friday.

“We’ve seen over 18 consecutive weeks of fund inflows into Asia ex-Japan beyond the course of the last couple of months,” he said, adding that it is “highly likely” that funds start to gyrate out of emerging markets in Asia back to the U.S. as a result of the boost to economic growth from Biden’s plan.

U.S. President-elect Joe Biden speaks as he lays out his propose for combating the coronavirus and jump-starting the nation’s economy at the Queen theater January 14, 2021 in Wilmington, Delaware.

Alex Wong | Getty Images

Biden on Thursday glory ined the breakdown of his proposed package, titled the American Rescue Plan, which includes measures aimed at sustaining families and firms until vaccines are a great extent distributed. The plan includes stimulus checks as well as unemployment support.

Sullivan said JPMorgan previously calculation a two percentage point drag on U.S. GDP as a result of the lack of fiscal stimulus.

“We had baked into our forecast a $900 billion financial stimulus package, that drove a move from a 2 percentage point drag to a 70 basis point foray to U.S. GDP,” he said of the previous forecast.

With Biden’s $1.9 trillion plan now coming in at more than twice the amount wished by JPMorgan, the analyst said it will be a “positive surprise” for the market as well as for overall levels of economic growth in the U.S.

“Investor nest egg flows into Asia have been very aggressive over the course of the past couple of months, you could start to see that defeat out,” the analyst said. “I’d say, we’re maybe about halfway through the trade at this stage.”

China’s markets — among the top troupers regionally in 2020 — could be among the first to be affected by this shift, Sullivan predicted.

“You’re likely to see the aggressive outperformers of 2020 be a author of funds,” he said. “China would be very much front and center there.”

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