Asset prices have moved along with a focus on the reflationary aspects of Trump’s pre-election pledges and promises. We expect tax cuts and deregulation, but also higher tariffs. This could mean higher nominal GDP in the US, mainly via inflation, and potentially higher-for-longer interest rates. We continue to monitor Trump developments closely.
As for the implications for Asia, it is a complex picture. Trump is likely to drive uncertainty and volatility, but this could also create opportunities for long-term investors. Higher tariffs and barriers to trade are bad news, and this seems likely under Trump. China could be affected, and this might prompt the Chinese government to ramp up domestic economic growth efforts with aggressive stimulus measures. Similarly, export markets too could be impacted, with trade-oriented countries potentially facing pressure from higher tariffs and limited rate cuts in the US.
Geopolitical tensions remain difficult to navigate and while the world’s focus is on Ukraine and the Middle East, Asia could also see shifts if Trump follows a similar playbook to his first term. So, we are likely to be in for a period of change, uncertainty and volatility across multiple fronts.
Asia, however, is a diverse region and it is wrong to paint it with the same broad brush. Largely domestic-driven economies like India will be insulated and may even benefit from continued supply diversification away from China. Intra-regional trade continues unhindered. Asia also does not have the macro imbalances that the West is saddled with, so economies should be resilient. And there is still growth. All of which means quality companies should remain structurally well positioned.
From a portfolio perspective, we believe we are well-prepared for a Trump victory due to our quality-focused stock picking approach. We have tightened quality characteristics, adding names with greater near-term earnings visibility and steady cash flow generation, while reducing and exiting names with less visible earnings. We have managed down our exposure to tariff-related risks. We maintain our conviction in our holdings and their ability to navigate market crosswinds, given their quality and fundamentals.
Finally, Asian earnings have shown resilience, even amid global economic uncertainties. Current valuations are reasonable too, presenting attractive opportunities for investors.
Historically, quality small cap stocks in Asia have outperformed during market recoveries and this trend may well continue under Trump’s period in office.
The inherent strengths of the Asian market, such as robust domestic consumption, technological innovation, and a growing middle class remain unchanged, further supporting the case for investing in the region. In summary, the combination of resilient earnings, attractive valuations, and a difficult policy backdrop under Trump could mean a period of outperformance for quality Asian stocks, offering both stability and growth for investors.
