After a week in which Asian stocks posted both their biggest-ever plunge and their largest one-day gain since 2008, investors in the region are working weekends, skipping sleep, interrupting business trips, poring over social media and focusing on short-term trades, alert to the fact that one man at the furthest point away from them on the planet can upend markets again at any moment.
No wonder financial professionals in the region are on edge. Besides the volatility in equities, Japanese government bonds posted their worst day ever last Tuesday, credit spreads blew out the most since 2000 over the week, the Chinese yuan sank to its weakest level since 2007 and the Indonesian rupiah set an all-time low. The Friday before, the Australian dollar tumbled the most in a day since the global financial crisis.
All those moves pivoted around US President Donald Trump’s trade policy decisions and officials’ responses to that across Asia Pacific. And that’s why it’s proving so disruptive for markets in the region.
Currency traders will be first to react as markets reopen Monday morning local time — after the dollar sank against almost all major counterparts.
This past week was “horribly tiring and mentally draining because even before you can analyse a set of parameters that’s put in front of you, as crazy as that set is, then a new level of crazy hits you,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank. The global financial crisis was “a lot more urgent, a lot more severe. But the main difference then was it was not engineered by the whims of one person and we were in it together. That’s how it’s different.”
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Even though investors were fearful of events last weekend, the reaction in markets was more extreme than many countenanced.
Going into Monday, Nick Ferres, chief investment officer of Vantage Point Asset Management in Singapore, which runs an Asia-focused global macro fund, had shifted almost half the portfolio into cash.
As markets opened, he realized this wasn’t enough. “We were defensive but I wish I had done more,” he said. MSCI’s Asia Pacific Index slumped by the most in its three-decade history. “I worked most of Sunday to prepare for Monday. I’ve had roughly three hours sleep on average each night this week,” Ferres said.
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“Until the headlines came, people completely underappreciated the scale and scope of change Trump was going to bring,” said Prashant Newnaha, a Singapore-based strategist at TD Securities. “And importantly, they weren’t positioned for it.”
By Wednesday, Vantage Point’s Ferres sensed that the turmoil in the Treasuries market in Asian trading — when yields spiked suddenly on fears of an unwind to the basis trade — would compel the administration to soften its tone on tariffs. He was right. Trump’s decision to impose a 90-day pause for certain tariffs sent Wall Street shooting higher and calmed jitters in the bond market.
“Stress in the bond market contributed to the pivot,” he said. But he was still unsure any rebound would last long and used the rally to offload more risk rather than join the rally. The call paid off. By Thursday in New York, the rally had reversed. “I cut more risk into the rally, not the other way round,” he said. “The longer the episode persists, the more likely you will get a hit to growth and profits. It’s going to cause a fundamental shock that is not fully priced into markets yet,” Ferres said.
It’s the potential for quick turnarounds in Trump’s policy that has traders most on edge.
“It’s a weird situation though because you don’t want to be short risk assets, since one person can just flip the switch anytime,” said Chauwei Yak, chief executive officer at multi-strategy hedge fund GAO Capital in Singapore. “The recession genie has been let out of the bottle so people are going to be more careful,” while traders may now resort to “staying up at night and being on Truth Social,” for clues on Trump’s next move.
“We saw profit-taking after the rally, and not a lot of people rushing in to take on new positions. We continue to be in short-term trades and are being reactive rather than fundamental long term.”
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Away from markets, all that volatility is also disrupting business plans across the region. Brian Tan, the head of non-China EM Asia economics research at Barclays Plc in Singapore, was in Jakarta for a business trip during the week, which also saw Indonesia’s markets tumble on reopening after the weeklong Eid holiday.
He had to squeeze in time to put out a note to clients early Thursday morning after Trump announced the 90-day pause, before jumping into his car to juggle a few meetings.
“Everyone is still on edge,” said Kok Hoong Wong, head of institutional equities sales trading at Maybank Securities. “On Wednesday morning it was looking like the end of the financial world, with yields spiking, stock futures tanking, yen rallying hard. By Thursday morning, we saw some panic buying at the open, and by Friday it seemed people turned cautious again, though sentiment was improving.”
“The realization that the Trump U-turn may not be the bottom has started to sink in. Perhaps we will be in for a longer-than-expected adjustment period post this trade tariff episode.”
The volatility may have a silver lining, according to Louis Gave of Gavekal, a group that runs the Hong Kong-based asset-allocation consultancy Gavekal Research and some global funds.
“The past week has shown that the ice investors are skating on is much thinner than most had believed,” he wrote in a note dated April 10. “To stop the crisis, Trump had to scale back massively his threat of a trade war. This means that for now, most tariffs are back in the box. And Trump now knows that if he reopens the box, he will risk another equity and bond market rout. As a result, it seems likely that the box will stay closed.”
Even then, the risk of a rebound is almost as dangerous as that of another selloff for traders trying to figure out how and where to deploy their capital after the week’s wild swings.
“During the falling market on Monday we started covering shorts in a lot of names and closing some short positions,” said Jun Bei Liu, lead portfolio manager at Ten Cap, a long-short equity fund focused on Australian equities in Sydney. The fund added to long positions it identified as lesser victims from a trade war, including Australian healthcare names like Fisher & Paykel Healthcare Corp Ltd., Cochlear Ltd. and Pro Medicus Ltd.
But it’s impossible to be complacent.
“The market is so oversold on this pessimism so the slightest positivity is leading the market to move so much,” she said. “Shorts are dangerous in this market because some companies are really oversold and we don’t have certainty about how quickly they will bounce back.”
