Trump tariff out, US recession fears in? Asia stock markets may fall more, warns Nomura

Nomura on Thursday warned stock investors that Trump administration’s reciprocal tariffs overnight appear to be bigger and broader than expected, and are a risk-negative event for Asian equities. The foreign brokerage said it does not see it as a market “clearing event,” which some market participants were hoping for.

"Asian stocks will likely have to go lower before we reach a stage where risk-reward becomes decisively more favorable for Asian equity investors to go on some bargain hunting," Nomura said.

The foreign brokerage said repercussions of tariffs will likely be felt on the US inflation and growth outlook over the next few weeks and months, when investors will intensely scrutinize core US hard data such as payrolls, employment, inflation and retail sales to assess the health of the US economy. 

"Any softening of data will likely increase market concerns of a US recession/stagflation, which will likely weigh further on risk sentiment in general, including on Asian stocks. Again, this assumes that some of these measures are not rolled back and/or trade/investment deals are not struck immediately," Nomura said.

It said the end-demand slowdown in the US due to potentially higher prices will have an impact on top-line of Asian exporters. This impact of slower top line and margins will have an impact on Asian earnings, too. Nomura sees downside to current consensus earnings projections.

That said, Nomura feels that it is possible that at least headline newsflow on the tariff front will likely get better as countries attempt to renegotiate these tariffs. "However, equity markets will still have to brace for hard economic data in the US and in countries that are impacted, and its impact on corporate earnings, in our view," it said.

Looking slightly over the medium term, Nomura said Asian equities have some buffer relative to US stocks, with modest relative valuations, as they were underperforming the US markets. A light foreign investor positioning (significant foreign net selling with most markets nearing oversold levels) with a scenario of softer dollar is likely to bring some relief for Asian central banks to be able to embark on rate cuts to support local economies, especially India, the Philippines and Indonesia, Nomura said.