Recent events have increased expectations of a new Trump presidency. The ramifications of this are widespread (and fairly depressing) but one aspect that I thought is the potential impact on emerging markets trusts.

Biden already has a pretty robust stance on relations with China. He has made it clear that its sabre-rattling in the South China Sea will not be tolerated and restated his support for Taiwan.

By contrast, Trump has declared that Taiwan should compensate the US for the protection it provides. Last week, after surviving an assassination attempt, he wove this into an argument that Taiwan has taken almost all of the US’s semiconductor industry. It was not all good news for China, though, as he has also threatened to impose sizable tariffs on Chinese imports.

On Mexico, Trump has suggested sending in US troops to battle drug gangs – whether the Mexican government gives permission for that or not. More widely, Trump’s protectionist instincts would likely weigh on Latin American exporters.

In Eastern Europe, as support for Ukraine wavers under a Trump-Vance ticket, nervous investors may avoid its near neighbours, many of which may be next on Putin’s hit list.

In the Gulf, family interests, which include a new Trump tower being built in Jeddah and a hotel in Oman, may mean that relations are relatively warm. However, while increasingly important to emerging market funds, the Gulf alone cannot carry the index higher.

The big unknown is how India might be affected. Again, protectionism and Trump’s perception of the balance of trade could be unhelpful – the US ranks alongside China as India’s largest trading partner. However, while export growth has been accelerating, India’s gross domestic product growth has not been reliant on it.

Granular approach

Calling the direction of individual emerging markets has always presented a challenge to investors in the region. There are some factors – such as US interest rates/the strength of the US dollar – that affect almost every country, but others are more idiosyncratic. Fund managers can tackle that head on by making individual country bets, minimising geographical impacts on returns, or ignoring them completely to focus solely on picking stocks.

The dispersion of returns is pretty wide. Based on MSCI indices and in sterling terms, over the 12 months to 30 June 2024, some frontier markets such as Pakistan, Turkey and Romania led the pack with returns over 50%. India, Taiwan, and Poland all made more than 30%.

However, Hong Kong, Thailand, and Indonesia were all down by more than 10%. China, which still dominates the MSCI Emerging Markets index, was flat.

How trusts fared

On the back of this, global emerging markets trusts have made gains over the past year. Fidelity Emerging Markets (FEML ) leads the pack, with total returns on net assets of 21.6%, helped by India being its largest weighting although its 18.6% exposure was underweight the benchmark’s 19.2% at 30 June. Its significant underweight to China also helped. It will be interesting to see if that changes, given Fidelity China Special Situations (FCSS ) manager Dale Nicholls’ optimistic outlook on China.

Fidelity Emerging Markets had a torrid time initially, caught out by Russia’s invasion of Ukraine, but has staged a strong recovery over the past year, with net asset value up 21.6% and a share price up 27%. The trust has a big overweight exposure to Hong Kong that is more than offset by an underweight exposure to China and Taiwan.

One of its big winners has been a Kazakh fintech company, Kaspi, whose share price is up 42% this year. However, it has also highlighted the contribution its largest holding – Taiwan Semiconductor Manufacturing or TSMC – has made to returns.

After rising 63% over 2024 on the back of the AI story, at the end of June TSMC was the largest stock in the MSCI Emerging Markets index with a weight of 9.7%. FEML was overweight then at 11.7% of the portfolio. Trump’s remarks and some profit taking mean that TSMC is over 10% off a high reached earlier this month, but whether you called it correctly has made a big difference to fund managers’ returns relative to the benchmark.

It has helped that TSMC pays a decent dividend, which made it eligible for inclusion in JPMorgan Global Emerging Markets Income (JEMI ) – which I have a holding in – and has helped it to third place in the sector over the past year.

Ashoka Whiteoak Emerging Markets (AWEM ) takes second place with net asset value up 13.8% and share price up 12.7%, according to Morningstar. The management team headed by Prashant Khemka is firmly in the camp that stock picking should drive the portfolio’s geographic weights.

The trust is now just over a year old and has established a decent record of beating the benchmark, ahead by 4.5% at the end of May 2024. That is good news for the fund managers who do not earn a base fee but instead rely on performance fees. However, with a market value of just £37.8m, it is still likely to be a loss-leader.

The aim is to expand the trust significantly and to that end it made advances towards Abrdn’s Asia Dragon (DGN ) in May. That triggered a review at the trust that is still ongoing. It will be interesting to see who comes out on top there, but Ashoka offered a 50% cash exit at a 1% discount that is going to be hard to beat.

It is worth highlighting that Ashoka Whiteoak Emerging Markets’ decent returns have been achieved even with a sizable underweight exposure to TSMC (6.5% of the portfolio at end May 2024). However, drawing on the manager’s expertise in the country, the portfolio does have a significant bias to Indian stocks, and these have made a useful contribution.

A Trump win is likely to be unhelpful for the macroeconomic picture for many emerging markets, but there will be winning and losing countries, stocks that can forge ahead regardless and managers that can navigate the inevitable gyrations in sentiment, as they have always had to do.

James Carthew is head of research at QuotedData.

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