Donald Trump’s unlikely support for Asian tigers

At first sight, the election of Donald Trump isn’t especially good news for the economies of Asia. The US President-elect is promising tariffs on all imports of goods to the US. That will hit Asia particularly hard because American businesses and consumers are such significant customers for so many companies across the whole region.

However, there may still be an opportunity ahead. When President, Trump does not intend to be even-handed. While his proposals are for a 10% universal tariff on imports, the plan is to be much tougher on certain countries; in particular, he is threatening a 60% tariff on all imports from China.

As research from the think tank Capital Economics points out, this could create winners and losers across Asia. “A 10% universal tariff accompanied by a 60% tariff on all US imports from China could leave Southeast Asia ahead, by enabling producers to gain market share and, possibly, encouraging inward investment,” Capital Economics argues. “Vietnam would be best placed to benefit from this trend.”

It's a rational argument. If Chinese goods are set to become particularly expensive, American buyers will look elsewhere for cheaper alternatives. Trump hopes American companies will be big beneficiaries of this shift. Some may be, but there are plenty of areas where imports will still be required. In which case, producers in other Asian countries stand to gain from their increased competitiveness with China.

Importantly, the investment trust sector offers a variety of different ways to get ahead of these developments. First, there are around a dozen Asia Pacific funds spread across several sectors; these funds offer diversified exposure to companies in markets across the region.

There are also country specialists, offering more focused exposure to the economies and companies of individual countries in the region. These include three investment trusts that focus specifically on Vietnam, singled out by Capital Economics as a likely beneficiary of Trump’s new approach.

One other option is a global emerging markets fund, many of which include some exposure to Asia Pacific, albeit alongside holdings in other developing economies around the world.

Now, it’s important to recognise that many of these markets are riskier than the developed economies of the West, with a track record of greater volatility. It’s also reasonable to point out that the Donald Trump hasn’t even taken office yet. And with Trump – more than most – we really don’t know how campaign rhetoric will translate into practical policy. Who knows where he will ultimately settle on trade policy and tariff levels.

This is one reason why investment trusts are a more compelling route into Asia than other types of collective investment vehicle. Their structure provides protection against volatility and rapidly changing market sentiment. Investment trusts specialising in the region also have a strong record of outperforming their open-ended counterparts over the longer term.

Tread carefully. But the fundamentals of Asia remain sound. Many of these markets contain many fast-growth, young economies with the potential to leap ahead in the years to come. And Donald Trump’s change of direction might just give some of them a boost in that regard.