A couple of weeks ago, I was discussing the possible impact of tariffs on Vietnam. If you recall, the managers of VinaCapital Vietnam Opportunity Fund (VOF ) were fairly sanguine about the prospect, reasoning that the US would see Vietnam as an ally in the region and recognise that it was making an effort to address the sizeable trade imbalance, while suggesting Trump’s family interests would outweigh other concerns.

In the event, Vietnam has been hit with some of the highest tariffs of any nation. The rationale for that is as idiotic as the idea that the US will be better off as a result. It appears as though Vietnam’s 46% tariff rate just represents half the percentage trade imbalance.

Unsurprisingly, Vietnam-focused investment trusts and Vietnamese companies have seen sharp falls in their share prices. But given the illogicality of the size of the tariffs, the unpredictability of the US regime, and the uncertain response to the US from the nations that it has targeted, it feels impossible to gauge whether the reaction is justified. VOF’s managers noted that the falls were indiscriminate, affecting domestically-focused companies and exporters alike. Hardest hit amongst Vietnamese trusts has been Vietnam Holding (VNH ), which fell by 15% in the wake of the tariffs (to close of play on Friday, but markets are still falling hard today).

China was expected to be a target but even here the scale of the tariffs (an extra 34%) was unexpected. There will be a knock-on effect, but the sheer size of China’s domestic economy diminishes the importance of US trade. Perhaps the more important development was China’s imposition of retaliatory tariffs, likely deepening and prolonging the trade war.

Fidelity China Special Situations (FCSS ), which I wrote about recently and which has benefited from China’s efforts to shore up its domestic economy, had been one of the best-performing trusts over the period since Trump’s election, but its share price is off 12.8% on the back of this news.

US tariffs on India have been set at 27%. Hardest hit of these closed-end funds has been Ashoka India Equity (AIE ), down 8.9% following the announcement and now down 18.3% year-to-date.

Japan was hit hard too with new tariffs of 24%, but most trusts are not much exposed to the big exporters. Schroder Japan (SJG ) has been hardest hit, down 10.1%.

Too late to hide? 

If we assume, for the moment, that Trump does not get cold feet and backtrack from this, the most immediate knock-on effect will be on US inflation, a problem which is being compounded by a fall in the value of the dollar.

There will be considerable disruption to large parts of the US economy – a recession now seems more likely. Markets are pricing in US interest rate cuts on expectations that the Federal Reserve acts to shore up growth, but they could be disappointed if the central bank focuses on inflation instead. That would also set up a damaging showdown between Trump and Jerome Powell, the Fed chair. Already, Trump is accusing Powell of playing politics.

The temptation might be to drastically reshape portfolios, but sadly it is probably too late for that. Share prices have largely already adjusted to reflect the new reality. Although, it does feel as though many of the trusts that have been hit the hardest have been the best recent performers, which suggests that investors are first opting to book the profits they have made on these.

Nevertheless, some investors appear to be buying Ruffer Investment Company (RICA ), which is surprising given that over the past three years it has performed worse than Personal Assets (PNL ) and Capital Gearing (CGT ) – RICA’s closest rivals among defensively positioned trusts.

If it is too late to hide, how about bargain hunting? Trusts that have seen a dramatic widening of their discounts in recent days include Gore Street Energy Storage (GSF ), which is now on a 53% discount despite no new information to suggest that its sale of tax credits associated with its US battery storage assets will not happen. In the private equity sector, HgCapital Trust (HGT ) is now on a 18% discount versus a one-year average of 3%.

Pershing Square (PSH ) now looks to be on a 38% discount based on Morningstar’s figures, but it has not adjusted its NAV estimate – the actual discount probably has not much changed from the 30% level that it has been trading at in recent months. I was hoping that PSH may have made a decent profit on some derivatives trades on the back of this. However, Bill Ackman’s strident criticism of the tariff policy might suggest otherwise. Look out for the trust’s next NAV announcement, which is not due until early May.

Or, if you would rather take a longer-term contrarian view than a short-term bet, it might be worth looking at the biotech and healthcare space, which has been the hardest hit of all AIC sectors since Trump was elected. Biotech Growth (BIOG ) is down 32%, RTW Biotech (RTW ) down 25%, and International Biotechnology (IBT ) down 20% from early November to Friday’s close.

James Carthew is head of investment company research at QuotedData

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